Bitwise CIO: Stalled Clarity Act Led to Faster Regulatory Clarity

Bitwise CIO Matt Hougan believes the crypto market has benefited from the failure of the Clarity Act, arguing that the industry traded long-term legislative certainty for more advantageous rules in the near term. Since the Senate failed to advance the crypto market structure bill on September 15, Bitcoin has gained roughly 8% and Ether 7%, with tokens like NEAR, Uniswap, and Avalanche seeing even larger moves.

The Senate vote fell short of the 60 votes needed to move the bill forward. Hougan notes that the legislation contained compromises that would have been less favorable to certain industry sectors than the regulatory actions that followed.

One area of benefit is stablecoins. The Clarity Act negotiations had aimed to address concerns regarding competition for deposits, but the bill's failure leaves platforms like Coinbase free to continue using stablecoin rewards to attract users. Hougan also suggests that established exchanges maintain an advantage through their existing state licenses and infrastructure, as the bill would have lowered barriers for new competitors.

Tokenization is another sector seeing progress. Two days after the Senate vote, the SEC granted a five-year conditional innovation exemption, allowing venues to trade tokenized US-listed stocks via permissioned automated market makers and liquidity pools without traditional exchange registration. Hougan argues this immediate path for experimentation is more practical than waiting for the years of studies and rulemaking that the legislation would have required.

Regarding revenue-generating tokens, SEC staff clarified on September 25 that buyback programs for functional, non-security crypto assets do not inherently constitute a promise of essential managerial efforts under the Howey test. While this is staff guidance rather than a formal rule, Hougan notes it reduces uncertainty for protocols like Hyperliquid, NEAR, and Uniswap that utilize revenue-based token mechanisms.

Hougan acknowledged the tradeoff regarding durability. Because agency interpretations and exemptions can be reversed by future administrations, they lack the permanence of legislation. JPMorgan analysts echoed this sentiment, noting that rules from the SEC and CFTC are susceptible to court challenges and future modifications.

Despite these risks, Hougan argues that increasing adoption by major financial institutions could make a broad regulatory reversal difficult. He concluded that crypto sacrificed long-term certainty and got better rules, faster.