Bitwise CIO: Crypto can outlast a CLARITY Act failure

Bitwise chief investment officer Matt Hougan said the crypto industry would keep moving even if the Senate fails to advance the CLARITY Act before its Aug. 5 recess. A stalled bill would be "walking dead," he wrote, not a fatal blow.

In a blog post Wednesday, Hougan said many, himself included, have called this the "make or break" week for the landmark market structure bill. He still argued the industry has made too much progress to "go back in the bottle."

"The reality is that Washington is always late to major technology shifts, and it has rarely mattered as much as people feared," Hougan said.

Senate Democrats will deny cloture, the procedural vote that cuts off debate, unless the White House shows progress on a bipartisan ethics deal, according to sources who spoke to Punchbowl News. Democrats also want movement on illicit finance and stablecoin yield, the sources said. The Senate faces an Aug. 5 deadline to advance the bill before its summer recess.

Polymarket prices enactment this year at about 23%, down from 82% in February, and odds have continued to slide toward the Aug. 5 deadline. Galaxy Research in July cut its probability of the CLARITY Act passing in 2026 to 30%. Failure this week could push a vote into next year, when lawmakers turn to the November midterms.

NYDIG global head of research Greg Cipolaro said July 24 that the latest draft is substantially more complete than earlier versions. He still did not see a credible path to 60 votes.

"The central investor takeaway is that Republicans have produced a substantially more complete bill, but not yet one with a credible path to 60 votes," Cipolaro said.

Bernstein has warned that a CLARITY failure could send crypto valuations lower.

Hougan said passage could still come in September or in December, when Congress returns for a lame-duck session and often wraps unrelated items into a single year-end package.

"Congress often bundles multiple bills into a year-end 'omnibus' package, forcing legislators to vote on a single bill that includes things they like and things they hate. Maybe the Clarity Act can pass that way," Hougan said.

If the bill fails this year, Hougan said, the industry would fall back on the joint interpretation the SEC and the CFTC issued in March. The interpretation classifies Bitcoin and other assets as digital commodities and replaces the SEC's 2019 staff guidance. SEC Chair Paul Atkins said last week his agency is "ready, willing, and able to come out with rules that address the same issues as CLARITY and other aspects of the crypto market."

Rules issued by the two agencies can be challenged in court or reversed by a future administration. Atkins conceded that point in March when the interpretation was released.

"Only Congress can ensure that regulation in this area is future-proofed through comprehensive market structure legislation," Atkins said.

WisdomTree chief legal officer Ryan Louvar made the same argument at a July congressional hearing. The absence of legislation would continue to impede the market despite the regulators' efforts, he said.

"A market cannot function well when its participants cannot tell in advance which agency's rules apply to them," Louvar said.

Hougan said "crypto will be fine" regardless. The industry still has two and a half years before a new administration can install a new SEC, he said.

"Washington is dysfunctional. It seems crazy to me that we can't get our act together to pass legislation that would improve investor protections and spark new innovation," Hougan said. "But it's not a referendum on crypto's validity as a pillar of the global financial infrastructure. That ship has long since sailed. At this point, crypto has enough momentum that it will reshape finance for decades, regardless of what happens in the next few days."