By Hannah Lang
Aug 10 (Reuters) – The chances that the U.S. crypto industry will win once-in-a-generation digital asset legislation are dimming, despite Senate Republicans promising to advance the bill when lawmakers return to Capitol Hill next month.
In a blow for the crypto industry, the Senate left Washington on Saturday for the five-week August recess without a much-anticipated vote on the Clarity Act, which would create a regulatory framework for digital assets.
The deep-pocketed industry has spent hundreds of millions of dollars campaigning to advance the bill which they say will put crypto companies on a solid legal footing, although Democrats, some Republicans and other critics say it lacks tough money laundering and ethics safeguards.
With the bill facing continued opposition from key Democrats needed to clinch 60 votes, and the Senate logjammed with other business, Senate Majority Leader John Thune, a Republican, on Saturday pushed a procedural vote that could kickstart the process of advancing the bill to the Senate floor to September.
But many analysts and lobbyists are skeptical that it has a future. That’s because the November elections, in which the House of Representatives and roughly a third of the Senate are up for reelection, will dominate lawmakers’ attention and truncate Senate sessions during another busy stretch, leaving little time for lawmakers to resolve ongoing differences.
“I think it’s a long shot,” said Brian Gardner, chief Washington policy strategist at Stifel, adding lawmakers do not appear to be close to an agreement, particularly on contentious ethics provisions.
‘AS FATAL AS A BULLET’
The Senate returns on September 14 and is scheduled to be in session for just 14 days before the October election recess, and a further 22 days before year end.
Thune on Saturday filed for “cloture,” setting up a September 15 vote on whether to limit debate on the bill and advance it to a full floor vote. That requires 60 votes, and will be a key test of whether the bill has a future. A failed cloture vote could effectively kill the bill, lobbyists said.
If it succeeds, Senate rules could then require days of procedural steps before a final vote, including debate and consideration of further amendments. Finding that time will be challenging, as the chamber usually has to consider other essential defense and funding bills later in the year.
If the bill drags into 2027, the election outcome is expected to become a major obstacle, analysts said.
While the Senate is up for grabs, polls favor Democrats regaining the majority in the House, which still has to bless the Senate version of the Clarity Act. House Democrats are expected next year to focus on oversight investigations of President Donald Trump’s administration rather than prioritize crypto legislation, said analysts.
In a social media post following news that the vote had been delayed, Wyoming Republican Senator Cynthia Lummis, who has played a central role drafting and negotiating the bill, appeared to acknowledge that these challenges have complicated the bill’s path.
“Death by 1,000 cuts is just as fatal as a bullet,” she wrote.
Many in the crypto industry, though, are clinging to hope. Cody Carbone, chief executive of crypto industry trade group the Digital Chamber, said the delay was disappointing, but that he believed there was still room for the Senate to advance the bill in the week of September 14, adding: “The fight is far from over.”
Spokespeople for Thune did not immediately respond to a request for comment.
CRYPTO ETHICS FIGHT
The bill defines the legal status of tokens, specifies which regulators oversee them and imposes other obligations on crypto companies. It would also ban government officials from operating their own crypto businesses, including Trump, who reported more than $1.4 billion in income from his family’s crypto ventures last year.
That has been a sticking point for Democrats, who want much tougher language that would allow state attorneys general to act as a second line of defense in enforcing that ban, empowering them to sue the Justice Department if they believe the agency is not being tough enough.
It is unclear whether the White House will agree to that, and a spokesperson did not respond to a request for comment. Democrats and some Republicans have also been pushing for tougher anti-money laundering controls.
“I don’t think that all hope should be given up if you’re a proponent of the bill, but it doesn’t look great,” said Ian Katz, managing director of Capital Alpha Partners.
Another contentious aspect of the bill deals with the extent to which crypto exchanges and other players are allowed to pay rewards on customer holdings of dollar-backed tokens called stablecoins.
The banking industry has fought this provision, arguing that it would create competition for deposits that fund lending. Crypto companies say that prohibiting rewards would be anti-competitive.
Some Republican senators have said they will not back the Clarity Act without stronger protections for community bank deposits.
Rebeca Romero Rainey, chief executive of the Independent Community Bankers of America, said lenders will continue to fight for those changes.
“We are leaving no stone unturned so that lawmakers recognize the danger of deposit flight as the bill is written,” she said.
(Reporting by Hannah Lang in New York; additional reporting by David Morgan; editing by Michelle Price and Nick Zieminski)
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