Senate Banking Committee Lawmakers Say Crypto Bill Is 'Closer Than Ever' Despite Setbacks

The U.S. Senate Banking Committee will vote today on the CLARITY Act, a piece of legislation aiming to clarify the regulatory roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission. The bill also seeks to address issues like false trading volume and mandates proof-of-reserve disclosures. Meanwhile, industry players are closely watching the outcome, with concerns over its implications for the market.

Coinbase and other major crypto firms have expressed reservations about the bill, particularly regarding restrictions on stablecoin yields. Coinbase has even threatened to withdraw support if the bill moves beyond simple disclosure rules for stablecoins. This move highlights the industry's push for a balanced approach that supports innovation without imposing overly strict regulations.

The Senate Agriculture Committee, which oversees the CFTC, has delayed its markup of the market structure bill to the last week of January. This delay provides additional time to negotiate and refine the bill's provisions, particularly around stablecoin yield restrictions and DeFi protections.

Why Did This Happen?

Lawmakers have pushed for provisions in the CLARITY Act to ban stablecoin yield payments and include ethics laws. Democratic senators are particularly focused on preventing conflicts of interest, including restrictions on high-ranking officials and their families from profiting from crypto-related ventures. These provisions aim to align the bill with broader concerns around financial ethics and regulatory oversight.

The bill also faces internal pressure from banking lobbies, who argue that stablecoin yields on third-party platforms could siphon deposits away from community banks. This concern has led to calls for stronger restrictions on stablecoin-related activities, particularly if they threaten the stability of local lending markets.

Analysts are monitoring how the bill will handle the classification of blockchain developers and service providers who do not handle user funds. A standalone bill, the Blockchain Regulatory Certainty Act (BRCA), has been introduced to exempt such entities from money transmitter regulations. This is a key area of interest for industry groups, who argue that such protections are essential for fostering innovation in decentralized technologies.

Another critical issue is the bill's treatment of audited financial statements and internal controls for digital asset service providers. Former SEC Chief Accountant Lynn Turner has warned that the current draft lacks robust safeguards similar to Sarbanes-Oxley requirements, which could leave the industry vulnerable to future crises like FTX. His concerns highlight the need for stronger investor protection mechanisms and PCAOB oversight in the bill.

What Implications Could This Have for the Market?

The potential passage of the CLARITY Act could have significant implications for the crypto market. If enacted, the bill would define clear rules for digital commodities and ancillary assets, reducing regulatory uncertainty for both investors and companies. It also includes provisions for standardized disclosures and risk management for DeFi protocols, which are seen as essential for long-term market legitimacy.

However, the bill's impact on stablecoins and DeFi remains a key point of contention. The ongoing debate over yield restrictions and regulatory boundaries highlights the delicate balance lawmakers must strike between fostering innovation and protecting traditional financial systems. Industry representatives warn that overly restrictive measures could drive innovation offshore, weakening the U.S.'s competitive position in the global crypto market.

The CLARITY Act is also expected to influence the broader financial landscape, particularly if it aligns with the Trump administration's push to establish the U.S. as a global leader in digital assets. SEC Chair Paul Atkins has expressed optimism about the bill's potential to provide a clear regulatory framework, while also emphasizing the importance of bipartisan support and timely passage ahead of the 2026 midterms.