America’s digital asset market structure hopes are fading fast as the White House stays silent on new ‘ethics’ language despite the ticking legislative clock.
Tuesday came and went without any sign that the Senate had scheduled a cloture vote on its digital asset market structure legislation (the CLARITY Act), despite senators due to leave town this weekend for their month-long summer recess. Time is rapidly running out for this procedural vote that could give CLARITY a fighting chance of passing in the roughly four weeks of Senate business that commences when senators return from their summer holiday in September.
There are a number of other, more pressing items on the Senate’s agenda this week, leaving CLARITY anything but guaranteed to find its calendar spot. President Donald Trump has demanded that the Senate not leave town until his own priorities are done deals, and Senate Majority Leader John Thune has suggested that he could push senators to stick around, but that in itself is a long shot.
There are a number of hurdles that could prevent a CLARITY cloture vote from passing, but one looms larger than the rest: the ‘ethics’ issue, aka Democrats’ desire to prevent public officials—including Trump—from profiting off crypto ventures over which they have authority to reduce or eliminate regulatory constraints.
All eyes are on the White House after a bipartisan rewrite of the ‘ethics’ language was sent to Trump on Friday, July 31. Details of the revised text have yet to be confirmed, but it may have walked back the previous text’s ban on state attorneys-general bringing charges against government employees who violate the ethics provisions.
Problem is, Trump believes he’s “allowed to” make major bank off private business while he’s president. He made over a billion dollars from his crypto ventures last year alone. He also rejected other attempts at crafting ethics language until this most recent language, which was largely dismissed by Dems (and some Republicans) as toothless. So why would he bend now?
As of Tuesday evening, there’s no word on Trump’s reaction to the new ethics proposal. This silence appears to be stiffening Dems’ resolve to oppose any attempt to vote on CLARITY absent tougher curbs on the president’s profiteering.
On Tuesday, the Wall Street Journal quoted Sen. Angela Alsobrooks (D-MD) saying she was “not going to support a bill in its current form unless ethics is addressed … The worst thing [Democrats] can do, from a political standpoint, is to be… immobile and to not do anything.”
The same day saw the Journal’s editorial board published an article titled Clarity for Crypto, Sort Of. While the bill acknowledges CLARITY’s positives, it doesn’t whitewash its negatives, saying CLARITY “needs changes to reduce risks to the financial system.” The article notes that “Congress often passes legislation riddled with policy land mines because the Members don’t want to do the hard work of defusing them.”
The crypto sector erupted with criticism of the article, although their reaction might be driven more by fears that there are enough GOP senators who were already uncertain about voting ‘aye’ on CLARITY who might be swayed by a reliably conservative voice taking this stance.
Sheriffs still not sold on ‘illicit finance’ language
On July 29, the Major Cities Chiefs Association (MCCA) sent Senate Banking Committee leadership a letter expressing their support for CLARITY’s revised ‘illicit finance’ language. The MCCA, which represents police execs from the largest cities in the U.S. and Canada, said the most recent changes to the illicit finance text represent “a meaningful step toward improving the ability of law enforcement to investigate financial crimes involving digital assets.”
CLARITY’s original illicit finance text resulted in pushback from both police associations and state prosecutors, who argued that the legal protections granted to developers of noncustodial decentralized finance (DeFi) platforms would make it harder to investigate and prosecute crimes involving digital assets.
The latest revisions to this language convinced several of these same police groups to either walk back or completely reverse their initial concerns. But not everyone is convinced the tweaks are a game-changer.
On July 31, the National Sheriffs’ Association (NSA) sent Senate leadership a letter saying CLARITY’s “significant law enforcement and public safety risks must be addressed before the Senate votes.”
The NSA warns that CLARITY “would create broad exemptions from registration, know-your-customer, anti-money-laundering, and sanctions-law requirements for certain decentralized-finance participants, potentially allowing illicit actors to exploit platforms and services designed to obscure digital-asset transactions.”
The letter includes a memorandum detailing the specifics of the NSA’s objections, including CLARITY’s “blanket exemption” for platforms built by developers “who do not like the public nature of most blockchains, such as mixers, tumblers, cross-chain bridges, and similar transaction-obfuscating services.”
The NSA suggests narrowing the DeFi exemptions “to include only the least risky types of software developers, such as operators of oracles, node providers, and some data suppliers.” The NSA opines that, in the future, governments around the world will target “everyone who receives revenue” from blockchain operations, so we might as well start doing it now.
The Blockchain Association (BA) responded to the NSA with its own letter, accusing the sheriffs of describing “a bill that Congress did not write.” The BA denies that CLARITY exempts devs from regulatory oversight, arguing instead that “it is an affirmative directive to regulate.” The BA insists that CLARITY’s illicit finance text “protects developers, not criminals.”
Also challenging the NSA was White House crypto adviser Patrick Witt, who tweeted a list of the other police associations that are now okay with CLARITY’s illicit finance proposals, adding that “it is not clear why NSA is so radically out of step with the broader law enforcement community.”
Banks still pressing for stablecoin ‘reward’ tweaks
On July 28, members of the American Banking Association (ABA) sent Senate leaders a letter seeking to “reinforce the concerns and recommendations recently transmitted by our state bankers associations” re CLARITY.
While the GENIUS Act that Congress approved last year prohibited stablecoin issuers from paying interest to stablecoin holders, third-party platforms weren’t subject to this restriction. A bipartisan ‘compromise’ in CLARITY would ban these platforms from paying interest/rewards to stablecoin holders who use the tokens in certain activities, but some bankers believe the scope of these activities is overly broad and ill-defined.
The ABA claims its members “support responsible innovation” but “also believe it is essential that Congress draw a clear line between payment innovation and deposit substitution.” The ABA references a previous letter underscoring concerns that “the prohibition on stablecoin interest and yield cannot be evaded through rewards, incentives, or other arrangements that are substantially similar to interest payments.”
Specifically, the ABA wants Congress to tweak CLARITY so the passive ‘yield/reward’ prohibition “cannot be avoided through creatively structured rewards, incentives, or other consideration.” The ABA also seeks to “remove language that would allow rewards or benefits to be calculated by reference to balance, duration, or tenure.”
On July 29, ABA CEO Rob Nichols told CNBC’s Squawk Box there were “only two paragraphs where we’re suggesting tiny surgical edits.” Nichols insisted that the crypto and banking sectors “can coexist. I think we can be the crypto capital of the world and I think we can be the banking capital of the world.”
On July 30, Punchbowl News’ Brendan Pedersen reported on GOP senators James Lankford (R-OK) and Mike Rounds (R-SD) expressing concerns regarding CLARITY’s stablecoin language and its potential impact on community banks’ ability to offer loans in their communities. Retail-focused banks fear the higher payouts available from stablecoin rewards will lead to mass deposit flight to these reward programs.
But Lankford and Rounds aren’t the only GOP senators to express these concerns. White House adviser Witt retweeted
(then apparently deleted) a tweet by Club for Growth president David McIntosh responding to the Punchbowl report, in which McIntosh called out all GOP senators opposing CLARITY as “uninformed shills for the community bankers!”
Prediction markets not out of the CLARITY woods just yet
And because this chessboard isn’t crowded enough already, tribal gaming operators are seeking to revise CLARITY to include a ban on prediction market operators like Kalshi and Polymarket offering bets on sports events in apparent violation of state gambling laws.
The tribes and their commercial casino counterparts first voiced their concerns in June, but the revised CLARITY draft issued last month offered no relief on this front. These concerns got a fresh airing Tuesday during a roundtable session of the Senate Indian Affairs Committee.
The 90-minute session saw several committee members express sympathy with the tribes’ concerns, noting the importance of gaming revenue to tribes’ bottom lines. Asked by ranking member Brian Schatz (D-HI) for the one thing the Senate should be doing in the short run to protect tribal revenue, several of the invited witnesses pressed for legislative ‘clarity’ on who gets to offer online sports betting.
Tina Smith (D-MN) suggested that the farm bill currently working its way through Congress might also be a good place to properly define the scope of prediction markets. It’s not a crazy idea, given that the ostensibly agriculture-focused Commodity Futures Trading Commission (CFTC) has gone out of its way to claim that prediction market ‘event contracts’ are a form of derivatives/swaps, which are under the CFTC’s purview.
But Agriculture Committee chair John Boozman (R-AR) quickly poured cold water on the farm bill idea. “As far as sticking [prediction market rules] in CLARITY, and sticking it in the farm bill, the problem there is that you’re conflating issues … this really doesn’t have anything to do with the farm bill … I don’t think those things are going to happen. I think you run into the same problem with CLARITY in the sense that crypto is not prediction markets.”
That’s a matter of opinion, given how much prediction markets rely on digital assets for customers to fund their accounts. In fact, prediction markets are exposing many of their users to digital assets for the first time. But Boozman is probably right about the lack of senatorial appetite for further complicating the already Byzantine process of getting any bill through Congress.
CLARITY setback could empower SEC / CFTC rulemaking push
Should CLARITY fail to advance, the CFTC and the Securities and Exchange Commission (SEC) could move swiftly to impose their own regulations, according to Bernstein analysts.
The two agencies could make great progress on implementing their interagency Project Crypto roadmap—including its ‘innovation exemption’ that effectively adopts a ‘let them cook’ approach to crypto operators—in the absence of federal legislation detailing the boundaries of their authority.
The crypto sector might even prefer that approach, given that each agency is headed by a Trump appointee seemingly incapable of seeing any potential crypto downside. Of course, agency regulations can be reversed by future occupants of the White House, particularly since the Supreme Court made it easier for presidents to fire the heads of allegedly ‘independent’ agencies who fail to do their bidding.
With that in mind, SEC Chair Paul Atkins has been making the media rounds to advocate in favor of CLARITY. CFTC Chair Michael Selig has been doing likewise, saying Tuesday that his agency “stands ready to implement rules to ensure America remains the crypto capital of the world.”
Polling shows crypto deeply unfavorable with Dem voters
The latest Federal Election Commission (FEC) filing from the crypto-focused Fairshake political action committee (PAC) shows the group and its two affiliates—the GOP-focused Defend American Jobs (DAJ) and the Dem-focused Protect Progress (PP)—had $127 million in cash on hand as of June 30.
Semafor’s Eleanor Mueller reported last week that CLARITY’s stalled momentum was frustrating Fairshake’s backers, including the Coinbase (NASDAQ: COIN) digital asset exchange and XRP-issuer Ripple Labs. Fairshake is reportedly waiting for an on-the-record CLARITY vote, so they know which Democrats the group will need to strike down with great vengeance and furious anger.
Semafor quoted one crypto exec saying Thune needed to call a vote so Fairshake and other crypto-focused PACs know for sure whether they’re going to throw all their support behind the GOP and all their venom against Dems. But should Thune fail to call for an initial vote before the recess, the GOP could also face some crypto PAC wrath.
Punchbowl reported Tuesday that Fairshake’s ability to strike terror in Dems’ hearts has limits. An unidentified senior Democratic aide said that if a cloture vote either fails or isn’t called before the Senate recess and Fairshake subsequently announces plans to punish Dems, any plans to revive the CLARITY push once the Senate returns in September would be pointless because even more Dems would be opposed. “If [Fairshake] spend in August, it’s done.”
Semafor also recently published internal Dem polling on ‘perceptions of the cryptocurrency industry’ among 800 Dem primary voters. The data suggests Trump’s crypto profits may actually compel Dems to take an anti-crypto stance ahead of the midterms.
The poll claims just 9% of Dem primary voters hold a ‘favorable’ impression of the crypto sector, tied with the National Rifle Association (NRA) and only two points higher than the enormously controversial U.S. Immigration and Customs Enforcement (ICE) agency. Crypto’s 57% ‘very unfavorable’ ranking also ranked third from the bottom, scoring worse than oil companies, artificial intelligence, Wall Street, data centers and pharmaceutical firms.
Asked what’s “the first thing that comes to mind when you think about crypto,’ the top response was ‘scam/crime,’ which scored more than twice as high as ‘confusing,’ the second-highest response. Just 10% of Dem primary voters currently hold any crypto, while another 5% held some in the past.
In a possible ‘out’ for Dems facing the voters in November, just 16% of primary voters said they’d view a crypto-supported candidate favorably, and only a quarter of these chose the ‘very favorable’ option. The 84% of those who’d view a crypto-supported candidate unfavorably were evenly split between ‘somewhat unfavorable’ and ‘very unfavorable.’
The data echoes other recent surveys that found Dem candidates who don’t accept crypto campaign cash fare better against GOP opponents than Dems who do accept such contributions. Other polling has found voters of all stripes don’t care about advancing legislation that the crypto sector holds dear.
Some Dem candidates have already begun tarring/feathering opponents for their pro-crypto stance. Minnesota Lt. Gov. Peggy Flanagan, who is competing with Rep. Angie Craig to be the Dem candidate for the Senate seat left open by the retiring Tina Smith, has been running ads portraying Craig’s 2025 support for the House of Representatives’ version of CLARITY as a vote “to let Trump make billions selling crypto coins.”
While the Coinbase-funded astroturf group Stand with Crypto gives Craig an ‘A’ rating based on her votes/statements (plus the fact that she co-sponsored the House’s CLARITY), Craig said last year that it is “legitimate to call out the self-dealing from the Trump administration related to hawking memecoins from the White House.” Will that be enough to save her? We’ll find out when Minnesota’s primary votes are cast on August 11.
New anti-crypto advocates lack ‘clarity’ on funding
While Fairshake claims to support/oppose pols based solely on their crypto views, there are no shortage of expressly GOP-supporting PACs, like the Winklevoss twins’ Digital Freedom Fund (DFF), although the DFF has yet to do much (anything, really) on the campaign trail.
But other groups are springing up to counter this imbalance, including Crypto Watchdog and Investors for Transparency (IFT). For the record, neither Crypto Watchdog nor IFT offers any information on their respective websites regarding who’s paying their bills.
IFT has begun running ads in the D.C. area urging senators to “reject this crypto scam,” aka CLARITY. IFT ran similar ads in January, urging members of the Senate Agriculture Committee to pass its version of CLARITY “without DeFi provisions.” IFT’s exec director is Jason Huntsberry, a longtime communications specialist who served in the Office of Political Affairs at the White House under President George W. Bush.
On July 22, IFT published Huntsberry’s view that CLARITY is “a dangerous step in the wrong direction that fails to stop crypto from being exploited by America’s enemies and puts hardworking Americans’ financial security at risk.” Huntsberry said the Senate “must reject this bill” due to it depriving cops/prosecutors of “the necessary financial tools to disrupt sophisticated criminal networks and protect Americans from crypto scams, hacks, and financial crimes.”
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