Clarity Act Stalled! What This Means For Bitcoin & Crypto

The Bitcoin rally that pushed prices to nearly $97,000 has encountered significant resistance, not from market fundamentals, but from legislative gridlock in Washington. Discussions regarding the "Clarity Act"—widely considered the most critical piece of cryptocurrency legislation globally—have stalled in the Senate Banking Committee following strong opposition from major industry player Coinbase. This legislative pause has introduced uncertainty into the market, highlighting a deepening rift between crypto innovation and traditional banking interests regarding stablecoin yields and financial privacy.

Key Points

• Rally Interrupted: Bitcoin’s price momentum stalled at approximately $96,755 as Senate negotiations on the Clarity Act broke down.
• Coinbase Opposition: CEO Brian Armstrong publicly rejected the current draft, citing privacy concerns, a ban on DeFi, and restrictions on stablecoin interest.
• The Yield War: A core conflict involves traditional banks lobbying to prevent stablecoin issuers from offering high yields (4-5%) that compete with low-interest bank deposits.
• Market Divergence: While Bitcoin paused, privacy coin Monero surged, reacting positively to the delay of legislation that could threaten anonymous transactions.
• Institutional Support Remains: despite the delay, Bitcoin ETFs recorded over $1 billion in weekly inflows, indicating sustained institutional appetite.

Legislative Gridlock Halts Momentum

The cryptocurrency market, which recently saw Bitcoin arguably become the fourth best-performing asset of the year, is currently facing a regulatory bottleneck. The Clarity Act, designed to provide a comprehensive framework for digital assets, developer rights, and decentralized finance (DeFi), failed to advance through the Senate Banking Committee as anticipated.

While industry heavyweights such as Andreessen Horowitz (a16z), Ripple, and Kraken have signaled a willingness to move forward with imperfect legislation to establish a baseline, Coinbase has drawn a hard line. The exchange's opposition stems from provisions they believe would fundamentally cripple the industry's potential in the United States.

"After reviewing the Senate Banking Committee draft text over the last 48 hours, unfortunately, Coinbase cannot support the bill in its current form. There are too many issues, including a de facto ban on tokenized equities, a ban on DeFi, giving the government unlimited access to your financial records, and erasing your privacy rights." — Brian Armstrong, CEO of Coinbase

Armstrong further argued that the proposed amendments would strip the Commodity Futures Trading Commission (CFTC) of authority, handing excessive control to the Securities and Exchange Commission (SEC), and stifle innovation by effectively banning stablecoin rewards.

The Battle Over Stablecoin Yields

Beneath the surface of the legislative debate lies a high-stakes economic conflict between the crypto sector and the traditional banking system. A primary sticking point in the stalled bill is a prohibition on stablecoin issuers paying interest or rewards to holders. This provision appears to be a concession to the banking lobby, which views high-yield stablecoins as a direct threat to their deposit base.

Currently, traditional banks often pay less than 0.5% interest on deposits while earning approximately 4% on Treasury bills, pocketing the difference to fund operations and lending. In contrast, stablecoin models—specifically the dynamic between Coinbase and Circle regarding USD Coin (USDC)—pass a significant portion of that yield back to the ecosystem or the exchange.

According to market analysis, Coinbase generates substantial revenue through its "USDC Economics Agreement" with Circle. In 2024 alone, Circle paid Coinbase nearly $1 billion related to USDC distribution. Analysts estimate that in the first quarter of 2025, Coinbase realized approximately $300 million from these payments. A legislative ban on sharing these yields would threaten this revenue stream and eliminate the competitive advantage stablecoins hold over traditional savings accounts.

Market Implications and Asset Performance

The legislative pause has created immediate winners and losers within the crypto market, driven by speculation on how the final regulations will look.

Privacy Coins and DeFi

Monero (XMR), a privacy-centric cryptocurrency, saw a sharp price increase following the news of the stalled bill. The draft legislation reportedly contains strict anti-privacy measures that would likely outlaw opaque transaction protocols. The delay provides a temporary reprieve for such assets. Conversely, Zcash (ZEC), which offers privacy features that can be made compliant with regulatory standards, stands to benefit more if a revised Clarity Act is eventually passed.

Security Classifications

The stalled legislation also brings attention to the "20% Rule," a proposed metric for determining decentralization. Assets where a single entity controls 20% or more of the supply or voting power could be classified as securities. This places major tokens such as BNB, Uniswap, Arbitrum, and Lido in a precarious position depending on future drafts of the bill.

Outlier Performance

Amidst the broader stagnation, Internet Computer (ICP) rallied independently of the regulatory news. This surge followed the release of a new whitepaper detailing a roadmap to reduce the network's inflation by 70% by 2026, alongside the launch of AI-driven decentralized application tools.

Future Outlook

Despite the current impasse, prediction markets like Polymarket still price in a 60% probability of the Clarity Act passing before the end of the year. The political pressure to enact a framework is mounting ahead of the 2026 midterms, with fears that a shift in House control could derail crypto legislation entirely.

For now, the market remains in a holding pattern. While ETF inflows suggest strong underlying demand, the industry is waiting to see if a compromise can be reached that satisfies Coinbase's business model requirements and the banking sector's defensive posturing. Until a revised text emerges, volatility is expected to remain concentrated around legislative updates rather than macroeconomic data.