CLARITY Act Has Two Weeks to Clear Senate or Face Midterm Risk

The Senate has roughly two weeks before its August recess to pass the CLARITY Act, a bill that would divide oversight of digital asset markets between the SEC and the CFTC. An ethics dispute over crypto activities by elected officials and their families remains the main obstacle to a final deal.

Grayscale Investments, the digital asset manager, warned in a July 23 research note that the legislative window is closing. Zach Pandl, the firm's head of research, wrote:

“The bill needs to clear the US Senate in the next two weeks (before the August recess), or it will likely get drowned out by midterm election politics.”

Senator Cynthia Lummis (R-WY), chair of the Senate Banking Subcommittee on Digital Assets, released revised text July 22. The update merges proposals from the Senate Banking and Agriculture committees into a single negotiating framework. Under the CLARITY Act, the Securities and Exchange Commission would oversee digital assets that qualify as securities, while the Commodity Futures Trading Commission would regulate commodities and derivatives.

The ethics provision is the final sticking point. Republican language restricts public officials from issuing or sponsoring digital assets while in office. Several Senate Democrats have argued the latest draft still lacks enough safeguards for elected officials and their families. They want stronger conflict-of-interest provisions before they will back the bill, according to people familiar with the talks.

Other parts of the legislation draw wide support. The bill protects noncustodial software developers from being treated as money transmitters. It requires customer assets be held separately from platform funds. It also tightens money laundering and illicit finance rules. Lummis has said the bill replaces regulatory uncertainty with a statutory framework that benefits developers, investors, and markets.

Coinbase CEO Brian Armstrong has urged the Senate to hold a floor vote before the recess. The exchange and other industry participants argue that clear rules would encourage institutional participation and improve customer protections. Grayscale said in the note that it “supports passage of the CLARITY Act and believes it will create a solid legal foundation for software developers, token issuers, investors, and other market participants, helping drive growth of public blockchain adoption.”

For companies offering stablecoins, tokenized securities, and blockchain-based financial products, the alternative is continued uncertainty. Without congressional action, they remain subject to overlapping federal authority and compliance rules that differ by agency. Regulatory interpretations often shift between presidential administrations or get challenged in court. Predictable statutory rules, by contrast, would give businesses a stable base for product development and risk management.

Industry advocates have warned that Congress may not revisit sweeping crypto legislation before 2030, making the current two-week stretch unusually consequential. The Senate Banking Committee has not yet scheduled a markup of the bill. The August recess is expected to begin in early August.

Goldman Sachs CEO David Solomon has publicly backed the CLARITY Act as a way to let banks offer stablecoin rewards, framing the bill as a competition issue with nonbank issuers. The CFTC currently operates with only one sitting commissioner, which some market participants say weakens its ability to handle a broader digital-asset mandate.

Whether the ethics dispute can be resolved before the recess will decide the bill's fate in this Congress. If the Senate passes the CLARITY Act before August, the House would need to take it up after returning in September. If the Senate fails to act, the legislation would carry over to 2025 with a new Congress and a midterm election cycle that could crowd out the debate.