- Key insight: Republicans' new text gives state attorneys general enforcement power over bans on federal officials owning crypto interests, but also puts up roadblocks to enforcement and lets federal officials put existing assets into a blind trust.
- Forward look: The package can go up for a procedural vote on Tuesday afternoon.
- What's at stake: The text also makes some changes to the stablecoin yield issue, but the changes are unlikely to lead to support from the banking industry and its allies.
WASHINGTON — The Senate could take a procedural vote on crypto market structure as early as Tuesday afternoon, but it's unclear if the most recent version of the legislation released by Republicans will be enough to win sufficient Democratic support to pass.
Republicans' new CLARITY Act text includes a number of concessions, particularly on ethics and
Republicans need a number of Democrats to sign on to the bill as well as their own entire caucus — including bank-friendly lawmakers on their own side of the aisle — to be fully on board.
The new text, released late Sunday evening, gives state attorneys general the power to enforce ethics provisions — including one barring federal officials, including the president or his spouse, from sponsoring cryptocurrencies or owning significant crypto interests. It does not, however, require federal officials to fully divest crypto assets, instead allowing officials to move their crypto assets into a blind trust.
"We expect Democrats will focus on the ability to move assets to a blind trust," said TD Cowen analyst Jaret Seiberg in a research note. "This raises questions about whether foreign governments or other interests could still use crypto purchases as a way to curry favor with a President as the President would know that he is benefiting even if he does not control the trust."
The language also requires state attorneys general to show that the U.S. Department of Justice not enforcing ethics provisions has caused some economic harm to their state, limiting states' practical ability to enforce the ethics provisions.
Aside from ethics — the biggest hang-up for Democratic moderates in the Senate at the moment — the bill also makes concessions to the banking industry on the
The Treasury secretary could block yield on stablecoins if he or she sees a run on community bank deposits, although the bill doesn't compel the Treasury to act.
A coalition of banking trade groups, including the American Bankers Association, Bank Policy Institute, Financial Services Forum, Independent Community Bankers of America and Consumer Bankers Association, sent a letter Monday to Senate Majority Leader John Thune, R-S.D., and minority leader Chuck Schumer, D-N.Y., saying that the "circuit breaker" language included in the latest bill test is insufficient to prevent deposit flight because it only kicks in after deposit flight has already occurred.
"A circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all," the joint letter said. "Congress should address this risk upfront by ensuring the Clarity Act prohibits payment stablecoin rewards and incentives that function like deposit interest, rather than waiting for harm to banks, borrowers and communities before regulators are empowered to respond."
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Patrick Witt, executive director of the President's Council of Advisors for Digital Assets, said at an event sponsored by the Solana Institute Monday afternoon that the concerns raised by the banking industry were "speculative" and that banks' argument about deposit flight are being made in bad faith, noting that stablecoins have been around for a number of years and have not contributed to lower deposits, which are up industry-wide.
"We don't need to speculate on whether the payment of rewards leads to deposit flight; it's already been going on for four years, and the data shows that deposits are going up, not down," Witt said. "I'm sorry, I just don't know what else we can do."
Analysts are still skeptical that the bill will ultimately pass into law, especially with so few legislative days left on the calendar. The Senate can pursue a cloture vote at 2:15 pm on Tuesday, moving the bill to 30 hours of floor debate, because it will have been two full legislative days since the package was introduced at that point.
Sen. John Thune, the Senate majority leader, could also look to expedite the bill via unanimous consent, or could withdraw the cloture motion if he wants to avoid a vote.
Ian Katz, managing director at Capital Alpha partners, said that the changes are helpful in getting to 60 votes for cloture, but that might not mean that the bill passes into law.
"I think there are some senators who want to show they're flexible and willing to consider it," he said. "They don't want to be seen as knee-jerk opposing whatever is offered. But I don't think that necessarily translates into a meaningfully better chance that the bill becomes law. It's not hard for senators to vote for it in cloture but then let it die under its own weight, or oppose it in a final vote."
House Majority Whip Tom Emmer, R-Minn., said at the Solana event that he believed that if the bill fails in its cloture vote — or passes a cloture vote but fails to pass the full Senate — that Congress would push to pass the bill during the lame duck session between the November midterm elections and the conclusion of the 119th Congress in December. If the Senate passes the bill, House Speaker Mike Johnson, R-La., has warned this member that they may get called back for a vote in the House, Emmer said, but the House will definitely not be in session in October because all the members will be in their districts campaigning.
"If it doesn't get done in this next week, or three weeks, my guess is it's not going to get done until after the midterms. But it absolutely has to get done by the end of the year," Emmer said. "We can't afford to lose another year; all the time we're losing is time we're not getting back."
Witt said he felt "very good" about tomorrow's cloture vote, but added that he did not expect the White House to support substantial amendments to the bill, calling it the White House's "best and final offer" and the product of "a year-plus" of bipartisan negotiations. But if the bill fails to pass, he said, he would expect the Securities and Exchange Commission and Commodity Futures Trading Commission to undertake their regulatory agenda to set rules of the road for crypto in the absence of legislation.
"The agencies have a very robust rulemaking agenda," Witt said. "They know they've got a job to do one way or the other."
