Will the 'Plan B' of the Clarity Act Work?

The procedural vote in September will still be the first real test. The Republicans control 53 seats and will need at least 7 Democrats to join in order to reach the 60-vote threshold.

Written by: Blockchain Knight

The Senate failed to take action on the Clarity Act before the August recess, and the procedural vote is scheduled for mid-September, still requiring 60 votes to advance.

While Congress is stalled, the SEC and CFTC have not been idle. On August 4, the CFTC Chair clearly stated that the agency has a proposal for crypto regulations and plans to finalize it before the current administration ends, regardless of whether the Clarity Act passes.

Similarly, SEC commissioners have expressed the same stance, stating that even if Congress does not act, the SEC can still advance meaningful rule-making.

Therefore, the two major regulatory agencies are using their administrative powers to build a new regulatory framework, which seems to update a Plan B.

The SEC's actions are focused on institutional design, and a meeting is expected to be held this week to review a customized issuance system for crypto investments. Many analysts believe this could be a milestone rule-making.

This set of rules marks the SEC's first formal rule-making process regarding crypto assets. Unlike previous personnel statements, the threshold for rescinding formal rules is higher.

The CFTC is also moving quickly. In addition to formally joining the SEC's joint interpretation and committing to consistent management of the Commodity Exchange Act, the CFTC approved its first Bitcoin perpetual futures contract in May.

Since the CFTC's authority in the derivatives space is already clear, it can quickly advance on these products.

Of course, how long these administrative actions can last is another question that must be faced. After all, there have been stories of federal agency administrative rules being overturned or amended. The SEC's interpretations can be modified or rescinded by future committees without a Congressional vote, while passed formal rules cannot.

In contrast, formally established rules, such as the SEC's August proposal and the CFTC's derivatives framework, require the next administration to go through a complete notice and comment process to be rescinded.

Of course, regulations are at the top level, and no agency can bypass Congressional legislation through press releases or staff memos.

For the market, the actual effect of these actions is about 50% of the CLARITY Act. They can address some of the industry's most urgent issues but cannot provide lasting certainty at the regulatory level.

Bitcoin may become the biggest beneficiary, as it already enjoys commodity treatment and a regulated derivatives base. The blockage of the CLARITY vote will not threaten its fundamental legal status like it does for token issuers and exchanges.

The procedural vote in September will still be the first real test. The Republicans control 53 seats and will need at least 7 Democrats to join in order to reach the 60-vote threshold. If the current bill is not amended or consensus is not reached, it will still face significant challenges.

Of course, if the vote passes the 60-vote threshold and the negotiation disputes are resolved, the Clarity Act could be implemented before the midterm elections, and the CFTC's spot regulatory authority could be written into law, providing the institutional allocation and exchange compliance with the permanence that only regulations can offer.

If expectations are not met, the SEC and CFTC can continue to govern the crypto space through administrative rules, but whether this can continue under the next administration remains a question mark.

Whether the curveball strategy can succeed is still uncertain, and the market has placed its expectations on next month.

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