Crypto's Clarity Bill Hangups

Crypto spent over a decade in regulatory purgatory. Now, clarity may finally be emerging on the world’s largest financial stage.

The United States Senate is actively considering two separate bills that are aiming to define how digital asset regulations will be enforced. One is sponsored by the Senate Banking Committee, the other by the Senate Agriculture Committee.

While many crypto commentators have focused their analysis on the upside potential for crypto adoption once legislative clarity is adopted (particularly within regulated financial contexts), few have paid attention to the problems that clarity risks creating for today’s crypto incumbents.

Today, we’re highlighting some of the red flags from these two Senate bills.

🥲 The High Cost of Crypto Clarity

Both the Senate Banking Committee’s Digital Asset Market Clarity Act (DAMCA) and the Senate Agriculture Committee’s Digital Commodity Intermediaries Act (DCIA) want to regulate crypto activity in America.

These bills' mere existence have excited many, but if enacted as written they could disenfranchise existing players from crypto’s regulated future.

🏦 DAMCA Challenges

Starting at the top of the Senate Banking Committee’s DAMCA, extensive amendments made to the Securities Act of 1933 by Title I would empower the SEC with the ability to unilaterally create guidelines for how securities laws should apply to digital assets.

This means allowing the SEC to decide when people who were involved in a token’s initial distribution (airdrop recipients, paid KOLs, team members, and investors) share liability with the token issuer and making the SEC the ultimate arbiter of when a digital asset is considered a security or commodity.

Progressing to Title II, DAMCA contains highly controversial provisions that would prohibit stablecoin issuers from distributing yield back to passive token holders, enshrining a perpetual advantage for the banking sector at the detriment of its crypto-native competitors.

Meanwhile, Title III of DAMCA adopts a purist interpretation of “decentralized,” and seeks to impose sweeping regulatory requirements on any blockchain-based applications accessible to American users that fail to meet its lofty bar.

🌾 Issues with DCIA

Turning to the Senate Agriculture Committee’s DCIA, the situation isn't looking much better.

With the Senate Banking Committee overseeing the SEC and the Senate Agriculture Committee overseeing the CFTC, achieving comprehensive crypto market structure reform requires legislative buy-in from both committees. Foreseeably, both bills will be reconciled to produce an omnibus proposal that gets advanced before the full Senate and approved with a single vote.

DCIA would expand the authorities of the Commodity Exchange Act to an unprecedented degree, granting the CFTC (a regulatory body tasked with overseeing commodity futures markets, not commodity spot markets) absolute jurisdiction over spot digital asset transactions.

It would subject any fungible digital asset that can be transferred person-to-person on a blockchain without intermediaries – including network tokens like ETH and memecoins like DOGE – to regulation, enforced by a comprehensive CFTC licensing and oversight regime that is just as likely to capture Coinbase and NYSE as it is Hyperliquid.

The end result will be the total elimination of free choice for anyone swept into DCIA’s requirements, compelling regulatory compliance by vesting the CFTC with novel authorities to regulate digital assets more stringently than it does any other asset class.

No Slam Dunks Ahead

We’ve been awaiting the arrival of crypto market structure clarity for years, and now that it has finally arrived, investors will have to get comfortable with the possibility that digital asset clarity will blunt the crypto industry’s rough edges.

Many less-than-scrupulous crypto projects will likely fall by the wayside once crypto clarity is finally delivered, making it more important than ever to prepare yourself (and your portfolio) for the prospect of a regulated digital asset future.

Despite months-long drafting periods that should have afforded crypto’s enmeshed lobbyists ample time to shape “favorable” clarity legislation, many major crypto firms now oppose DAMCA and DCIA. While the timelines for clarity enactment remain unclear, the final fate of DAMCA and DCIA now rests with Congress.