Clarity Act Won’t Be Enough to Bring Crypto Boom Back

After helping elect President Trump in 2024, the crypto industry had high hopes for getting legislation providing a clear regulatory framework for the sector—which the industry hoped would unlock a huge wave of new interest from big money and mainstream investors alike. 

That bill, known as the Clarity Act, is now looking unlikely to pass this year. And given uncertainty about who will control Congress after this year’s midterms, crypto companies have to confront the unwelcome reality that they’ve missed their best shot to gain permanent legitimacy in the eyes of regulators. 

If the Clarity Act doesn’t pass before the mid-terms, it may not pass under a Democrat-controlled House or Senate. That’s a long-term problem for crypto. Regulators have been friendly to crypto under Trump, but the industry remains exposed to crackdowns under future administrations. 

Yet that lack of regulatory protection isn’t actually the industry’s biggest problem right now.  Even if the Clarity Act passes, it would provide far less of a business boost to crypto than many had originally assumed. That’s because crypto is deep in another bear market. Bitcoin has fallen to pre-2024 election levels and is down by half from its October peak. 

And while the industry has been through these kinds of crypto winters before, this one appears likely to have a lasting impact. 

Take last month’s announcement by two long-running exchanges—BitMEX, co-founded by bitcoin evangelist Arthur Hayes, and Bitmart—that they were shutting down. BitMEX said it decided to close after a strategic review of the business and the broader crypto industry, and Bitmart cited operating conditions and the market environment for its plan to wind down. 

Meanwhile, there are signs that individual investor interest has moved from betting on crypto to real world wagers. Robinhood, for instance, reported last week that prediction market revenue surpassed crypto trading revenue for the first time in the second quarter. There’s no obvious reason why investors’ interest in real world wagers will reverse—even if the Clarity Act passed. In fact, prediction markets tend to pick up around big event cycles like elections, so we’ll see what the fall holds.  

New forms of crypto hacks also keep popping up, hurting crypto’s standing even with diehard fans. Last week, hackers stole more than $100 million worth of Bitcoin from thousands of addresses on physical hardware wallets made by Canada-based Coinkite. That shocked the Bitcoin holders who have long believed cold storage was the safest way to protect their wealth. 

Security breaches are nothing new, of course, and memories have typically been short. Hackers stole a record $1.5 billion from Bybit last year, while this year, the largest decentralized lending platform, Aave, suffered from a run after hackers deposited bad collateral. But with crypto prices showing no sign of shaking their slump and breaches coming from unexpected corners, investors may see less of a risk-reward tradeoff for holding crypto. 

There’s also not much argument for an acceleration in institutional adoption of crypto, which has typically been a catalyst for price gains in the past. Banks have been moving into blockchain technology, to be sure, but much of that focuses on stablecoins and putting traditional financial assets on-chain. They have less interest in moving into more speculative crypto markets. 

Even if the Clarity Act passes, it’s unclear how much additional appetite that will unlock from traditional banks, especially while markets remain weak. “I don’t think the banks particularly care about the crypto parts of it. There’s just not that much interest in crypto per se these days,” said Joe Cox, partner at Oliver Wyman who advises banks and a former regulator at the Federal Reserve. 

Cox said where banks are focused is in stablecoins, deposit tokens, and building capital markets on-chain. Wells Fargo, this week, announced it will offer its deposits on the blockchain for corporate and commercial clients to move money across borders this fall. The Genius Act has already provided legal certainty for stablecoins, so those bank priorities are much less tied to the outcome of the Clarity Act.

And as we wrote a few weeks ago, Coinbase and JPMorgan’s partnership to tie crypto deeper into consumer banking—via features like converting credit card reward points into crypto—is delayed. The two firms, meanwhile, have been facing off over stablecoin-related aspects of legislation. Even if they get over their differences, it’s tough to see how much urgency a big bank will have in rolling out consumer features while crypto is in a slump. 

Meanwhile, some of the fastest-growing corners of crypto—such as perpetual futures on offshore venue Hyperliquid—are not covered by the Clarity Act at all, so even the bill’s passage won’t immediately help encourage regulatory risk-averse banks to lean in to capture a hot market. “The pathway for Hyperliquid to be accessible to U.S. users does run through the agencies, not through Congress,” said Jake Chervinsky, CEO of Hyperliquid Policy Center, which advocates for Hyperliquid.