Clarity's Vote Failed. Now What?

CLARITY’s latest, and arguably most anticipated, vote failed early today.

To be clear, this was not a vote to pass CLARITY through the Senate. It was a vote on whether senators were ready to move the bill out of its months-long negotiation phase and formally begin considering it on the Senate floor.

As it failed 49-50, well short of the 60 votes needed, it seems they're not.

— (@)

How We Got Here

The disappointment comes after optimism around the languishing bill returned this weekend (probably what makes it sting most).

On Sunday night, Republicans released what they called their final CLARITY draft, incorporating over 100 substantive changes requested by Democrats. Among them was, most notably, a much stronger ethics package which President Trump had agreed to, addressing what had become one of the biggest remaining obstacles to Democratic support.

— (@)

Under the new rules, “covered” officials, including the President, Vice President, members of Congress, federal judges, other senior officials, and their spouses, would be barred from launching or promoting digital assets. (Children of covered officials, however, remained outside the restriction.) They would also be prohibited from holding more than $15,000 in equity in a business that generates the majority of its revenue from issuing or "sponsoring" digital assets.

For those officials like Trump already involved in one of these qualifying business interests, they would have to either sell the stake or transfer it to a qualified blind trust, one managed by an independent trustee.

Also, a major part of these ethics restrictions was that they gave state attorneys general a role in enforcing them, addressing Democrats' concerns that enforcement otherwise could largely rest with Trump’s own Justice Department (who wouldn't raise a finger against him).

These changes looked like they might finally be enough.

— (@)

The Deal Breaks Down

But by Monday night, Democrats had returned with another counterproposal seeking stronger ethics restrictions.

The full proposal has not been released publicly, but reporting indicates Democrats wanted the rules broadened to more directly cover officials’ children and wanted public officials with large interests in crypto companies to actually liquidate their holdings, not simply transfer them to trusts. Concerns also remained around whether the enforcement mechanism still left the President too insulated from action by state attorneys general.

Republicans vehemently rejected that counterproposal Tuesday morning, with a spokesperson for Sen. Cynthia Lummis saying the proposal looked “identical” to Democrats’ position from weeks earlier, a statement Democrats rebuked by saying they had been pushing for the language for much of the past year.

At that point, much of the optimism around passage started leaking out of the sails though, for the market, it wasn't until CLARITY actually failed its vote that Bitcoin fell, dropping sharply 4% to below $75K briefly before beginning to recover.

— (@)

So, What Happens Now?

For CLARITY specifically, the immediate path forward is unclear.

Technically, the bill is not dead. Lawmakers could return to negotiations, make further concessions, and try another vote. But, from the reporting, Republicans seem pretty jaded while Democrats seem like they won't budge. Plus the calendar is now firmly against them, with Congress preparing to leave Washington ahead of November’s midterm elections.

There is the possibility of a post-election push, or another attempt if lawmakers unexpectedly find a deal before then, but today's failure makes it much harder to see CLARITY becoming a major legislative priority again this fall.

Importantly, though, crypto rulemaking itself will not stop.

The CFTC and SEC will continue using their existing authority to write rules and clarify how current commodities and securities laws apply to crypto where they can. The limitation, though, is permanence. These agencies can still make an impact, but they can't recreate the certainty that would come with a comprehensive law like CLARITY, and those rules can be challenged or rewritten by future administrations. That said, I still expect the "mainstreaming" of crypto to progress, even if it's messier once agin.

But for that mainstreaming to be carved in stone, with a framework much harder to walk back, it looks like we must keep waiting. Until when is anyone's guess.