Clarity Act Fails in Senate, Unlikely to Pass This Year

This rejection is a major hurdle for establishing digital asset-related regulations and is expected to significantly impact the entire industry.

A Senate cloture vote is a procedure to end debate on a bill and move it to a final vote, requiring a two-thirds majority (60 votes). However, with the bill's failure to pass this vote, uncertainty for related companies has increased, according to assessments.

Kim Dong-hwan reported on the situation at the time, stating, "There was a cloture vote for the passage of the Clarity Act, but it has now failed."

The Senate cloture vote, held at 3:15 AM KST, failed with 49 votes in favor and 50 against. This result fell short of both the 60 votes required for passage and even the simple majority of 50 votes.

Notably, 44 out of 45 Democratic senators voted against it, with one absent, effectively indicating unanimous opposition. Two independent senators, aligned with Democrats, also voted against it. Additionally, four dissenting votes within the Republican party negatively impacted the bill's passage.

Park Sang-hyun emphasized the outcome of the vote, stating, "I would like to point out that it not only failed to reach 60 votes but also fell short of 50 votes, with only 49 in favor."

Among the four Republican senators who voted against the Clarity Act, Senators Susan Collins, Josh Hawley, and Jerry Moran are analyzed to have pro-banking leanings. The influence of banking interests related to their constituencies is believed to have been reflected in their votes.

Senator Thom Tillis's 'no' vote is known to be a strategic choice for requesting a motion to reconsider in the future. Park Sang-hyun explained, "These three, in particular, were likely senators who leaned towards the banking sector, according to analysis."

Senator Thom Tillis initially maintained a 'yes' stance but changed his vote to 'no' just before the tally. This is understood as a strategic decision to secure eligibility to file a motion for reconsideration if the bill failed.

A motion to reconsider is a crucial procedure that allows a bill to be fast-tracked for re-deliberation, intended to keep the bill's chances of passage alive. Park Sang-hyun explained Senator Thom Tillis's intention: "There's also a procedure called a motion to reconsider, which allows for a fast track. I'll explain this in more detail later, but he intentionally voted 'no' to file this motion to reconsider."

This was a result that reflected expectations for the bill's passage.

However, Senator Thom Tillis, who had maintained a 'yes' stance until a few hours before the vote, changed his position during negotiations and voted 'no.' Such a strategic move by a senator who announced retirement reveals the complex political dynamics of the bill.

Park Sang-hyun recounted the situation at the time: "When Thom Tillis said 'Oh, I'm in favor,' the price of Bitcoin went up by about $1,000."

Among the four Republican 'no' votes, three are analyzed to have opposed the bill due to conflicts of interest with community banks in their constituencies. These senators' opposition can be interpreted as an effort to represent the economic interests of their respective districts.

Senator Thom Tillis showed a willingness to negotiate until the end, but the bill ultimately failed. The fact that one more opponent emerged compared to similar past bills is also cited as a factor influencing this rejection.

This led to a breakdown in negotiations between the two parties.

Even Democratic negotiators voted against the Republican-led amendment, seemingly because they believed Republicans continued to make additional demands despite most of the Democrats' requests having been accommodated. The Digital Asset Editor-in-Chief explained the situation at the time: "We already accepted most of the Democrats' demands in the amendment, but they keep asking for more. Their demands are endless, they said, effectively rejecting the Democrats' alternative."

The negotiation method, which involved staff members rather than direct participation from actual decision-makers (senators), was cited as a limitation.

Some even raised a conspiracy theory, suggesting that the Republican side intentionally forced a vote because they were reluctant to amend the ethics provisions. The Digital Asset Editor-in-Chief criticized the negotiation method at the time, stating, "If the debate and negotiations were truly to proceed properly, staff should not have been called in. Senators from both parties should have met and discussed it directly."

This is a strategy to prevent the process from resetting and to create room for further deliberation on the bill.

In the case of the 2023 GENIUS Act, there was a precedent where it passed 10 days after failing on May 18. If additional negotiations proceed before the end of the Senate session on September, the Clarity Act also has a chance of passing.

The Digital Asset Editor-in-Chief delivered a positive signal, stating, "Senator Thom Tillis, a Republican, still created an opportunity for a fast track by submitting this motion to reconsider."

Angela Alsobrooks, who led the Democratic negotiating faction, expressed an optimistic outlook that the Clarity Act would not be abandoned. She maintained that industry regulation is essential because over ten million Americans invest in digital assets.

However, the Republican party's unilateral submission of an amendment may have offended Democratic senators, potentially acting as a variable in future negotiations. The Digital Asset Editor-in-Chief said, "I believe it won't be abandoned. Because over ten million Americans are investing in digital assets, and this industry itself is unregulated."

While this is seen as an effort to strengthen transparency in the cryptocurrency industry, it could impose a significant burden on the industry.

This amendment also includes strong regulatory provisions, such as extending ethics restrictions to presidential family members and mandating the sale of company shares within 180 days. Park Sang-hyuk mentioned key details, stating, "What's included among the previously absent provisions is that people who promoted cryptocurrency are now required to disclose the sponsorships they received."

These clauses, reportedly referencing the UK's example, are likely to act as very strong regulations within the US and could be a major stumbling block to the bill's passage.

This reflects disappointment over the bill's failure and a pessimistic outlook for the future.

The Clarity Act, being comprehensive, involves many contentious issues, and new points of contention continue to emerge, making negotiations difficult. Consequently, skepticism about its passage by October is growing.

Park Sang-hyuk predicted, "The general consensus is that even amidst many points of contention, new issues keep arising, so it seems unlikely to pass by October. Some Republican senators are even saying it might have to go to the lame-duck session."

This increases the likelihood that industry-opposed provisions, such as stablecoin payment restrictions, could be included.

If the bill is significantly amended under Democratic leadership, the Republican party would inevitably suffer political damage. If Republican influence is diminished following the midterm election results, this risk would become even greater. Park Sang-hyuk explained, "If it goes to the lame-duck session and finally passes, it would be a scenario where the Republicans are pushed back again and again until the Democrats have nothing more to fix, and then it passes. At that point, the industry might even say, 'It would be better if we didn't have it at all.'"

This is a negative factor that could lead to a loss of momentum for the Clarity Act.

The departure of key supporting senators is expected to weaken the basis of support for digital asset-related legislation in Congress and increase uncertainty about future bill passages. Park Sang-hyuk said, "Pro-digital asset Republicans like Senator Cynthia Lummis and Senator Thom Tillis will not run for re-election in the midterm elections and will end their terms. So, I also want to mention that these points could be negative factors."

In particular, concessions from President Trump's side on the ethics provisions are expected to critically influence the bill's passage.

Bipartisan cooperation in the House of Representatives could also be a significant variable. The possibility that a bill rejected in the Senate could be revived through discussions in the House cannot be ruled out.

Park Sang-hyuk predicted, "Even if the Clarity Act is a comprehensive bill, if it overcomes just three or four key points of contention, as the CEO mentioned earlier, it's actually almost agreed upon. If President Trump accepts the original ethics provisions, it's highly likely to pass."

Strong party lines, regardless of political system worldwide, tend to restrict individual choices of lawmakers.

Ultimately, if the differences over the ethics provisions are narrowed to some extent, there is a possibility that some Democratic negotiators might switch to a 'yes' vote. Park Sang-hyuk analyzed, "Some of the Democratic negotiators actually wanted to cast 'yes' votes, but the disagreements over the ethics provisions were so wide, and the Democratic party line on it was so firm, that it's difficult to defy party lines when they're so strong, regardless of politics worldwide. As I said, if the differences over the ethics provisions narrow to some extent, there's room for some of the negotiators to switch."

This shows a dual stance, suggesting that the bill's failure is not entirely negative.

Coinbase tends to favor existing, relatively favorable legislation, and there is also a possibility that market sentiment overreacted to this rejection. Park Sang-hyuk stated, "Brian Armstrong, Coinbase CEO, commented on this cloture vote failure, saying it was regrettable, but also made a remark that seemed like a sigh of relief, that the Clarity Act had several provisions that were difficult for us to accept."

It is expected that discussions on the Clarity Act will remain stalled between the Senate and the House for some time. Therefore, the Bitcoin market is likely to react more sensitively to macroeconomic issues.

In particular, major economic events such as the Fed's interest rate decision, to be announced after the FOMC meeting concludes, are expected to significantly impact Bitcoin's price. Park Sang-hyuk emphasized, "Since the Clarity Act issue will likely be stalled for a while as both chambers need to discuss it, I think macroeconomic issues will probably come to the forefront again during that time. So, tomorrow at 3 AM, after the FOMC meeting concludes, there's the Fed's interest rate decision, which will likely have a big impact on Bitcoin."