The CLARITY Act just stalled. What happens now?
There’s never a dull moment onchain. Here’s what you need to know this week:
The CLARITY Act just stalled in the Senate. The landmark crypto law didn't get the votes it needed — here's what happens next.
The Fed just raised interest rates. Why crypto and stock markets seemed to shrug off the first increase in three years.
10-year Treasury yields just hit their highest level since 2007. Rising borrowing costs are rattling stocks, and crypto is feeling it too.
MARKET BYTES
Crypto markets held steady following first U.S. rate hike in three years
As was widely expected, the Federal Reserve raised interest rates in the U.S. for the first time in three years on Wednesday. The quarter-percent increase put the target range at 3.75% to 4% — and the central bank also signalled that one more rate increase is likely later this year.
Just a month ago, the idea of a near-term rate hike seemed unlikely, but the sustained conflict in Iran, the resulting high energy costs, and spiking bond yields (which determine borrowing rates for consumers and businesses) has left the central bank with few other good options, according to many analysts.
Crypto markets, which had dipped on Tuesday as the CLARITY Act stalled in the Senate, seemed to have largely priced in the move. (Rate hikes are traditionally seen as a bearish signal because the combination of more expensive borrowing and higher returns on cash holdings can mean less capital ends up in asset classes like stocks and crypto.)
Here’s more on the Fed’s move, the future of crypto regulation, and other news you should know…
Why did the Fed raise rates?
The backdrop to the Fed’s decision is complicated. While energy prices, general inflation, and bond yields are all higher than the central bank prefers, employment and consumer-spending data remains surprisingly healthy.
“Economic activity is expanding at a solid pace,” the central bank reported. “While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient … Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability.”
Sticking point… “The fact that inflation has now been above the Fed’s target for five and a half years is becoming a sticking point for many officials,” said Bloomberg reporter Catarina Sariava. “They’re worried that the long length of time that prices have been climbing at a rapid clip will start to change consumer expectations for future inflation. That could then impact their current spending decisions, further exacerbating price growth. That inflation spiral is a central banker’s worst nightmare.”
U.S. 10-year treasury yields rise to multidecade highs
The day before the Federal Reserve meeting, the 10-year Treasury yield — a key inflation marker — briefly spiked to two decade highs. Major stock indices dropped following the news.
“The yield, which serves as a benchmark for borrowing costs across the globe, rose as much as five basis points to 5.04% on Tuesday, the highest since 2007, before pulling back,” reports Bloomberg. “The jump came after oil prices jumped anew on concern that crude supplies could be further choked off as the war in the Middle East widens.”
According to Bloomberg, rising yields increased the odds that the Fed would be forced to raise interest rates, because otherwise traders might demand even higher bond yields going forward. Rising bond yields would also result in more expensive borrowing for individuals and businesses — and also could mean that less capital would be deployed into asset classes like crypto and stocks.
Limited scope… Some analysts are concerned that there’s no obvious catalyst on the horizon to drive yields substantially down. “The scope for long-end yields to fall is somewhat limited given that we don’t see signs of weakness in the real economy and supply/dynamics in the Treasury market are very different relative to 2007,” said Phoebe White, head of US rates strategy at UBS Group AG. “Structural demand for US Treasuries, particularly among foreign official investors, is materially weaker.”
SEEKING CLARITY
What just happened with the CLARITY Act?
The CLARITY Act’s long road through the legislative process hit a speed bump on Tuesday, after a key vote failed to pass in the Senate with enough support. After months of debate and an apparent compromise this week on ethics provisions between senators and the White House, a “cloture vote” that would’ve allowed negotiations to continue failed to garner the 60 votes required, meaning that for now at least, the Senate is moving on to other business in advance of the midterm elections in November.
What does that mean for crypto? Here’s what you need to know.
What’s the CLARITY Act, again?
The bill would have resolved major questions hanging over the crypto industry, including defining the Commodities and Futures Trading Commission (CFTC) as the agency overseeing crypto markets, codifying the right to self-custody of crypto assets, and creating legal definitions for key crypto terms including “mature blockchain” and “digital commodity.” White House adviser Patrick Witt said the law could have unlocked trillions of dollars in institutional capital that’s currently waiting on the sidelines for regulatory clarity.
What are the odds of its passage now?
Coming into the week, there wasn’t much optimism for the bill’s passage within the next year. But by Monday, following news of a potential compromise around ethics provisions, prediction market traders gave the bill a 58% chance of passage before October 2027.
By Tuesday, after the failed vote, those odds plummeted to 13%. Democrats had been seeking language that would strengthen state attorney generals’ ability to enforce the law, among other provisions, while Republicans insisted the draft of the bill released Monday was “as good as it’s going to get.”
Even if the procedural vote had passed on Tuesday, there still could have been a potentially long road toward the CLARITY Act becoming a law, including the amendments process, a full Senate vote, and a full vote in the House of Representatives.
Congress could still take up the CLARITY Act in a future session. “The failed vote likely means the crypto industry will have to wait until next year for clearer rules,” notes CNBC. “Sen. Cynthia Lummis (R-Wyo.), the top champion of the crypto industry in the Senate, told reporters earlier Tuesday that ‘it’s over’ [for now] if the CLARITY Act procedural vote failed.”
What happens with crypto regulations now?
As CNBC reports, “much of the [crypto] industry has resigned itself to the likelihood that regulatory momentum may have to be built outside of Congress. The SEC, for example, has proposed allowing startups to sell as much as $75 million of tokens without registering, while the CFTC recently approved the first bitcoin perpetual futures in the U.S.”
Earlier this summer, CFTC Chair Michael S. Selig said that if the CLARITY Act failed to pass, his agency would “utilize its existing authorities to begin establishing a [regulatory] regime for crypto asset markets.”
Ahead of the vote, Coinbase CEO Brian Armstrong suggested that no matter what happens with the CLARITY Act, the industry remains in a strong position. “Frankly, if it doesn’t pass, it’s also going to be a good outcome because the SEC and the CFTC have said that they’re ready to publish rulemaking,” he said.
NUMBERS
$110 million
The amount Kaiko, the crypto data provider, is raising in its Series B funding round — from investors including S&P Global, BNP Paribas and Coinbase Ventures. Kaiko offers data from more than 150 exchanges and DeFi protocols to institutions, helping bridge onchain data and TradFi. The company said the financing will help it strengthen its infrastructure for 24/7 tokenized markets.
4,096
The number of bytes that can now fit in a single Solana transaction — more than three times the previous limit. By allowing more data per transaction, developers will have room to facilitate more complex trades, allow for multi-sig wallet approvals, and create stronger integrations with privacy applications.
$10
Price level that Standard Chartered analysts say Arbitrum's ARB token could hit by the end of 2030, a 70-fold gain from current values. “The bank expects tokenization to make Arbitrum a favored network for traditional finance, even though ARB holders currently have no direct claim on the fees,” notes CoinDesk.
TOKEN TRIVIA
Under the CLARITY Act, which U.S. agency would be defined as the main regulator of crypto markets?
A
The Federal Reserve
B
The FDIC
C
The Commodities and Futures Trading Commission (CFTC)
D
The Securities and Exchange Commission (SEC)
Find the answer below.
Trivia Answer
C
The Commodities and Futures Trading Commission (CFTC)
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