Experts say Democratic sweep dims prospects for Clarity Act in current form

Experts warn the bill is unlikely to pass as written

Democrats won control of both chambers of Congress in the U.S. midterm elections on Tuesday, and several crypto industry experts said the result makes it unlikely that the Clarity Act will pass in its current form.

The Clarity Act is a proposed bill that would set out how cryptocurrencies and the companies that handle them are regulated in the United States. The bill had already failed to advance in September, when Republicans controlled both chambers.

Industry voices point to a difficult path ahead

• Analyst Mati Greenspan said the Democratic sweep may be the final blow to the bill in its current form, noting it had already failed a procedural vote in September.
• Stefan Muehlbauer of CertiK said the bill is likely dead in its current form.
• Anton Golub said the bill's chances in its previous form have collapsed, and pointed to an unresolved dispute between banks and crypto firms over stablecoin rewards.
• Crypto political action groups, or groups that spend money to support candidates, spent about $170.5 million in the elections, according to figures Golub shared. He said Republicans received at least $125.5 million of that amount.

Why experts cite the September vote and stablecoin dispute

The bill failed to move forward in September even though Republicans controlled Congress and President Donald Trump is described by the source as crypto-friendly.

Golub said Trump created a friendlier environment for crypto companies for regulation, but added that his family's involvement gave Democrats a reason to oppose crypto-friendly legislation.

One issue still unresolved is stablecoin rewards. A stablecoin is a token designed to track the value of a currency such as the U.S. dollar. Banks oppose letting exchanges pay customers rewards on dollar-backed tokens, the source said, because they fear deposits could move from bank accounts.

More scrutiny is expected, but some see a bipartisan opening

Muehlbauer expects Democrats to increase scrutiny of crypto firms and Trump's crypto dealings through hearings and investigations, particularly on money laundering, cybersecurity and consumer protection.

Brent Fulfer took a different view. He said the bill had already failed in September under Republican control of the Senate, and noted that more than 70 House Democrats had supported it. He argued a bill with bipartisan support and safeguards against conflicts of interest could have a better chance.

Jason Fernandes also saw an opening. He said some rules and enforcement against bad actors can help further legitimate businesses, if lawmakers take a measured approach rather than punishing the whole industry for the actions of a few.

Crypto trading products continue to expand

Golub said he does not expect the election result to stop crypto trading products from expanding. He pointed to Tuesday's decision by the Commodity Futures Trading Commission to allow a single-stock perpetual futures contract on qualifying U.S. exchanges.

A perpetual futures contract lets traders bet on a price without owning the underlying asset and without a fixed closing date, the source explained. A federal judge indicated on Tuesday that such products might not be allowable under the commission, according to the source.

Golub said he expects perpetual futures to grow in U.S. derivatives trading beyond crypto into equities and other markets. That is his opinion, not a confirmed outcome.

What is confirmed and what is still an opinion

Confirmed from the source: Democrats won both chambers, the bill failed to advance in September, crypto groups spent about $170.5 million, and the commission made the Tuesday decision on single-stock perpetual futures.

Opinions differ on what comes next. Some experts expect intense scrutiny, including possible investigations into Trump's crypto interests, political donations and prediction markets, and into tokenized stock offerings. Others argue a new bill with stronger consumer protections and conflict-of-interest safeguards could gain bipartisan support.

Sources

• CoinDesk