The CLARITY Act Markup and Its Implications for Institutional Entry into the U.S. Crypto Market

The CLARITY Act of 2025, formally H.R. 3633, represents a pivotal legislative effort to resolve regulatory ambiguities in the U.S. digital asset space. By defining clear jurisdictional boundaries between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), the Act aims to foster institutional adoption of cryptocurrencies while promoting U.S. competitiveness in the global crypto market. As the bill moves through the Senate, its potential to reshape the regulatory landscape-and, by extension, institutional investor behavior-has become a focal point for market participants.

Regulatory Framework and Institutional Clarity

The CLARITY Act categorizes digital assets into three distinct classes: digital commodities, investment contract assets, and permitted payment stablecoins according to the bill text. Digital commodities are defined as blockchain-based assets whose value is tied to the functionality of the network, excluding traditional securities and derivatives. The CFTC is granted exclusive jurisdiction over these commodities, while the SEC retains oversight of investment contract assets, which are digital commodities sold or transferred under an investment contract as defined in the Act. This division seeks to eliminate overlapping regulatory authority and reduce legal uncertainty, a critical step for institutional investors who require clear compliance frameworks to allocate capital.

However, the Senate's competing draft-the Responsible Financial Innovation Act-introduces a new category of "ancillary assets" and expands CFTC authority over spot markets according to the draft. These discrepancies highlight unresolved debates over definitions such as "blockchain" and "decentralized finance," which remain open for stakeholder feedback as reported. The need for reconciliation between the House and Senate versions underscores the complexity of aligning regulatory expectations with industry needs.

Regulatory Clarity as a Catalyst for Institutional Adoption

Regulatory clarity is a cornerstone of institutional investment in crypto. According to a report by Arnold Porter, the CLARITY Act's structured framework is expected to reduce ad hoc enforcement actions and create a "durable division of authority" between the SEC and CFTC according to the analysis. This predictability is critical for institutions like BlackRock and Fidelity, which have already demonstrated confidence in the sector. For instance, BlackRock's iShares Bitcoin Trust (IBIT) reached $70 billion in assets under management (AUM) in 2025, reflecting growing institutional demand for crypto exposure according to SSGA. Similarly, Fidelity's FBTC ETF attracted significant capital, signaling a shift toward mainstream adoption as reported.

The Act's alignment with broader regulatory trends further bolsters confidence. The Trump administration's Executive Order 13995, titled "Strengthening American Leadership in Digital Financial Technology," emphasizes technology-neutral regulations and the promotion of dollar-backed stablecoins according to State Street. These efforts, combined with the appointment of pro-digital asset leaders like SEC Chairman Paul Atkins, signal a cultural shift in regulatory oversight as noted. As stated by State Street in its 2025 Digital Assets Outlook, nearly half of institutional investors expect digital assets to constitute 10–24% of their portfolios by 2030 according to the outlook.

Institutional Strategies and Market Dynamics

The CLARITY Act's provisions are already influencing institutional strategies. BlackRock has positioned stablecoins as a "bridge between traditional and digital liquidity," highlighting their role in tokenized finance as reported. Meanwhile, State Street has emphasized the importance of infrastructure such as custody solutions and on-chain settlement in enabling institutional participation according to their analysis. These developments align with the Act's goal of fostering innovation while ensuring market integrity.

However, challenges remain. Critics argue that the Act's preemption of state-level consumer protections could undermine traditional banking systems and expose investors to risks as detailed in a comment letter. Additionally, the Senate's proposed restrictions on stablecoin yield-limiting rewards to specific user actions like transactions or staking-may impact business models reliant on passive income.

Path Forward and Global Context

The CLARITY Act's eventual passage could position the U.S. as a global leader in crypto regulation, particularly as the EU's Markets in Crypto-Assets (MiCA) framework takes effect. Lawmakers recognize the urgency of finalizing the bill before the 2026 midterms to avoid losing momentum according to CNBC. As noted by CNBC, Senate Agriculture Committee Chair John Boozman has delayed markups to build bipartisan support, underscoring the political stakes involved.

For institutions, the Act's success hinges on its ability to balance innovation with investor protection. While the House version prioritizes regulatory efficiency, the Senate's focus on market-integrity obligations reflects ongoing tensions between pro-growth and risk-mitigation priorities as reported.

Conclusion

The CLARITY Act's markup process is a critical inflection point for the U.S. crypto market. By establishing a clear regulatory framework, the Act addresses institutional concerns about legal uncertainty and compliance costs, thereby accelerating capital inflows. However, its final form will depend on reconciling divergent legislative approaches and addressing stakeholder critiques. As the Senate moves forward, the market will closely watch how these debates shape the future of institutional crypto adoption.