US Senate fails to advance Digital Asset Market Clarity Act, crypto regulation bill blocked

Author: Hal Bundrick, CFP® — Senior Writer Reading Time: 4 min

Senators voted Tuesday to block the Clarity Act from moving forward, dealing a setback to efforts aimed at establishing a comprehensive regulatory framework for the U.S. crypto industry.

The Digital Asset Market Clarity Act received 50 votes in favor and 49 against the motion to proceed — falling short of the 60 votes needed to advance. The threshold would have required at least seven Democratic "yes" votes alongside all 53 Senate Republicans.

Sen. Elizabeth Warren (D-Mass.), an outspoken critic of the legislation, said the bill "fails to adequately protect investors, our financial system, and our national security." Republicans countered that the latest draft included more than 100 revisions requested by Democrats, including stricter ethics guidelines.

The bill — over 600 pages long — would have marked the first federal regulation of the U.S. crypto sector. A version cleared the House last year but encountered resistance in the Senate.

For the crypto industry, Tuesday's vote represented the first step toward Senate consideration of the Clarity Act, opening the door to further negotiations before returning to the House for additional approval.

Read more: How to trade crypto: A step-by-step guide

Defining Crypto Enforcement Jurisdiction

Felix Shipkevich, a law professor at Hofstra University and founder of a New York City-based fintech-focused law firm, said the legislation's benefits outweigh its drawbacks.

"From a purely regulatory perspective, this legislation draws the line between the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. If adopted in its current form, it will spell out when a digital asset will be treated as a commodity and when a security." — Felix Shipkevich, in an email to Yahoo Finance

Shipkevich believes this could resolve the uncertainty many exchanges, broker-dealers, and other market participants currently face — and ultimately guide "the path to registration with the appropriate federal agency."

Read more: How to set up a crypto wallet: A step-by-step guide

Braden Perry, partner at the Kennyhertz Perry law firm in Kansas City and a former CFTC senior trial attorney, spent years bringing enforcement cases before the federal agency.

"The hardest fights were never about the fraud. They were about jurisdiction. Regulation by enforcement means a company learns the rules when it gets sued. That is backward. A statute that tells you upfront whether the SEC or the CFTC is your regulator fixes a problem the agencies have been litigating for a decade." — Braden Perry, in an interview with Yahoo Finance

Businesses can work with strict rules, Perry said, but not without any rules at all.

However, Perry warned that the bill "hands the CFTC a massive new retail market without a matching budget." Without congressional funding, "you get a regulator on paper and a gap in practice," he cautioned.

"Here's the thing about a 600-page bill: the definitions are where the fights live. Whatever line Congress draws between a security and a digital commodity, lawyers like me will spend years testing its edges. Clarity in the title does not guarantee clarity in the courtroom." — Braden Perry

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A Path Forward for 'the Next Generation of Finance'

In an interview with Yahoo Finance, Faryar Shirzad, chief policy officer at Coinbase, said that if the bill becomes law, it would pave the way forward for digital assets.

"If the bill passes, what you have is the U.S. finally doing what every other G20 country has done, which is to establish legislatively a regulatory framework about..."

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