What Happens to Crypto Regulation After CLARITY Fails

TL;DR
·The U.S. Senate failed to advance the CLARITY Act, with a procedural vote of 49 in favor and 50 against, falling short of the 60-vote threshold.
·If Congress cannot establish a crypto market structure framework in time, who will set the rules? The answer increasingly points to the SEC and CFTC. The two regulators have already launched joint actions and indicated they will use existing statutory authority to continue advancing crypto regulation.
·The SEC may first advance rules in areas such as crypto asset issuance, custody, and on-chain securities trading; the CFTC may establish regulatory pathways around digital commodity spot markets, leverage and margin trading, and DeFi.
·The SEC and CFTC can address some questions of how existing laws apply to crypto markets, but cannot fully replace Congress in resolving more fundamental institutional issues such as the boundaries of authority between the two agencies. Therefore, after CLARITY stalls, U.S. crypto regulation may enter a phase of "administrative rules first, congressional legislation later."

U.S. crypto market structure legislation has stalled in Congress once again.

On Sept. 15, the U.S. Senate failed to pass the procedural motion needed to advance the Digital Asset Market Clarity Act (CLARITY Act). The final vote was 49 in favor and 50 against, falling short of the 60-vote threshold required to end debate.

This does not mean the CLARITY Act has been finally rejected, but with the November midterm elections approaching, the difficulty of advancing the bill in the short term has clearly increased.

For the crypto industry, a more practical question arises: If Congress cannot legislate in time, who will regulate next?

The answer may be the SEC and CFTC.

Over the past few months, the two U.S. financial regulators have been preparing for this scenario. SEC Chairman Paul Atkins previously made clear that until Congress completes market structure legislation, he and CFTC Chairman Michael Selig plan to provide a "bridge" to formal legislation through their jointly promoted Project Crypto. In March of this year, the SEC and CFTC also jointly released an interpretive document on the application of securities laws to crypto assets, attempting to delineate some regulatory boundaries first.

After CLARITY is temporarily unable to advance, this regulatory path, originally intended as a transitional plan, may become even more important.

Congress Doesn't Provide Answers, SEC and CFTC Start Setting Rules

One of the core issues the CLARITY Act sought to resolve is the long-debated question of regulatory jurisdiction in the U.S. crypto industry.

Which digital assets are securities? Which are digital commodities? Should trading platforms register with the SEC or the CFTC? Where exactly are the regulatory boundaries between the two agencies? Ideally, these questions ultimately need to be clarified by Congress through statutory law. But regulators are no longer prepared to wait.

Just one day before the Senate vote, SEC Chairman Paul Atkins publicly supported CLARITY while also stating that even without congressional legislation, the SEC will continue to advance its crypto regulatory agenda. According to Atkins, crypto asset issuance, custody, and related market infrastructure reforms will continue to be priorities for SEC rulemaking.

In fact, the SEC has already begun doing so this year.

In March, the SEC released an interpretive document on crypto assets, further explaining how federal securities laws apply to different types of tokens, and proposed classifications such as digital commodities, digital collectibles, digital instruments, stablecoins, and digital securities. The CFTC joined this interpretation, indicating it will align with the relevant framework when enforcing the Commodity Exchange Act.

In August, Atkins also said the SEC is advancing "tailored" rules and exemption regimes for the crypto asset market, including making activities such as capital formation and on-chain trading more compatible with the existing regulatory system. But he also emphasized that congressional legislation remains "indispensable," partly because formal legislation can make rules more durable and less likely to be overturned by future changes in regulatory leadership.

On the other side, the CFTC is also preparing to expand its role.

According to the original text, CFTC Chairman Michael Selig has asked staff to study how to use existing authority to regulate crypto asset markets if Congress is unable to pass a market structure bill for an extended period. Possible directions include establishing a CFTC regulatory pathway for certain crypto markets offering leverage or margin trading, and studying how DeFi protocols can operate under the U.S. regulatory framework.

This means that some of the market rules the CLARITY Act originally sought to establish through a single law may first be pieced together by the SEC and CFTC through regulatory interpretations, rulemaking, and exemption mechanisms.

Shifting from "Congressional Legislation" to "Regulators First"

This change may push U.S. crypto regulation into a different phase.

Previously, market attention focused on when CLARITY would pass and how Congress would ultimately divide authority between the SEC and CFTC. Now the question may become: How far can the two agencies go using existing laws before CLARITY arrives?

The SEC primarily holds authority over securities market regulation, so it can adjust existing rules around digital securities, token issuance, crypto asset custody, and securities tokenization.

The CFTC has long been responsible for commodity derivatives markets and also has partial regulatory authority over markets related to digital commodities such as Bitcoin. In the absence of new congressional authorization, it can also use existing laws such as the Commodity Exchange Act to establish new regulatory pathways in areas it can cover.

The two agencies can also act jointly.

When the SEC released its crypto asset interpretive document in March, the CFTC participated simultaneously; Atkins also stated in congressional testimony that the two agencies will jointly study token classification and related exemption mechanisms through Project Crypto, hoping to make it clearer to investors and the industry what regulatory obligations they bear.

Therefore, CLARITY's stall does not mean the U.S. crypto industry is returning to a state of no rules at all. On the contrary, regulatory rules may continue to increase, except that the primary producer of rules has temporarily shifted from Congress to regulators.

But SEC and CFTC Cannot Fully Replace CLARITY

However, there remains a key difference between "regulators taking over" and "congressional legislation."

What the SEC and CFTC can answer is: Under existing laws, how should crypto assets be regulated?

What CLARITY sought to answer is: What kind of legal system for crypto markets should the United States establish in the future?

These two things are not exactly the same.

The SEC can interpret securities laws, modify registration rules, and grant certain exemptions; the CFTC can also establish market regulatory systems within its statutory authority. But the two agencies cannot, through administrative rules alone, completely redraw the powers granted to them by Congress.

This is also why Atkins, while actively advancing SEC crypto rule reforms, still emphasizes that market structure legislation is "indispensable." He previously stated that regulators can first build a "bridge," but to form more durable rules, congressional action is ultimately still needed.

This also provides another perspective for understanding CLARITY's current setback.

In the short term, the market may not need to wait for Congress to see more regulatory rules: the SEC and CFTC have already begun to act, and as CLARITY's legislative window narrows, the importance of the two agencies may further increase.

But in the long term, how digital assets are classified, what exactly the SEC and CFTC each regulate, and what institutional framework the U.S. crypto trading market ultimately adopts still cannot easily bypass Congress.

Therefore, CLARITY's failure to advance does not mean U.S. crypto regulation has pressed pause. More likely, the SEC and CFTC will take the baton first and continue pushing rules forward within the limits of existing law.

What is truly worth watching next is not just when CLARITY will return to the Senate, but what rules the SEC and CFTC will introduce first, and how far they can go without new legislation.