The CLARITY Act's Regulatory Uncertainty and Its Implications for XRP and ETH

The CLARITY Act (H.R.3633), introduced in May 2025, represents a pivotal attempt to establish a federal regulatory framework for digital commodities in the United States. By assigning the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over digital commodities and reserving the Securities and Exchange Commission (SEC) for investment contracts meeting the Howey test, the bill seeks to resolve years of regulatory ambiguity. However, as of December 2025, the Act remains stalled in the Senate, with key provisions-particularly those governing stablecoin rewards and decentralized finance (DeFi)- sparking fierce debate. For investors in assets like XRP and ETH, this regulatory brinkmanship creates both immediate risks and long-term strategic opportunities.

Short-Term Market Risks: Volatility and Institutional Uncertainty

The CLARITY Act's delayed progress has already introduced significant short-term volatility into the crypto market. According to a report by Bloomberg, the bill's indefinite postponement of the Senate Banking Committee's markup hearing in early 2026 has led to a 12% drop in XRP and ETH prices, as investors grapple with uncertainty over their legal status. This volatility is exacerbated by conflicting signals from industry players: while Ripple and Solana have publicly endorsed the Act's non-ancillary asset framework-which would shield tokens like XRP from SEC enforcement actions- Coinbase and other platforms have withdrawn support, citing concerns over stifled innovation.

A critical flashpoint is the Act's treatment of stablecoin rewards. The American Bankers Association has warned that allowing stablecoin platforms to offer interest on holdings could destabilize traditional banks by siphoning deposits. In response, the latest draft of the Act prohibits rewards for "solely holding" stablecoins but permits "activity-based" incentives tied to specific user actions. This compromise, however, has failed to satisfy either banks or crypto firms, creating a regulatory gray zone that could deter institutional adoption in the near term.

Long-Term Strategic Positioning: Regulatory Clarity as a Catalyst

Despite short-term turbulence, the CLARITY Act's potential passage could reshape the crypto landscape over the next decade. If enacted, the Act would grant XRP, ETH, and other tokens classified as "non-ancillary" assets the same regulatory clarity as Bitcoin, enabling them to be traded via exchange-traded products (ETPs) listed on U.S. national securities exchanges. This development, as noted by a report from MEXC, could unlock institutional capital flows by reducing legal risks for asset managers and custodians. For ETH, which has long been contested under the Howey test, this framework would provide a clear path to mainstream adoption.

For XRP, the Act's provisions are particularly transformative. Ripple's CEO, Brad Garlinghouse, has emphasized that the non-ancillary classification would resolve the SEC's ongoing enforcement actions against the company. This regulatory resolution could catalyze XRP's integration into cross-border payment systems, where its low-cost, high-speed attributes already outperform traditional alternatives. However, the Act's success hinges on resolving the stablecoin debate: if restrictions on stablecoin rewards remain, platforms like Coinbase may lose a critical revenue stream, potentially driving innovation offshore.

Navigating the Regulatory Tightrope

The CLARITY Act's ultimate impact will depend on its ability to balance competing interests. For investors, this means hedging against short-term volatility while positioning for long-term gains. Assets like ETH and XRP, which stand to benefit from the Act's non-ancillary framework, may see renewed institutional interest once regulatory clarity is achieved. Conversely, tokens reliant on stablecoin yields or DeFi mechanisms could face headwinds if the final bill mirrors Coinbase's worst-case scenarios.

In the broader context, the Act's delays highlight the political complexities of regulating a nascent industry. With mid-term elections approaching and shifting legislative priorities, stakeholders must remain agile. As one industry analyst noted, "Clarity beats chaos, but only if the chaos ends." For now, the CLARITY Act remains a work in progress-a testament to the high stakes of reshaping the digital asset ecosystem.