We need crypto market clarity now

OPINION:

As our financial markets evolve, the CLARITY Act represents a critical economic decision before Congress.

If enacted, it would establish a global standard for how the U.S. organizes its financial system in the age of digital assets.

Additionally, the bill will determine how the country balances innovation with stability and whether it fosters a competitive marketplace or entrenches existing, powerful players. The outcome will shape not only digital assets but also the next frontier of American financial leadership.

Under the Trump administration, a keen focus on these issues has become readily apparent. Congress should follow suit with the same enthusiasm.

With the rise of decentralized finance and technological advancements in finance, the absence of clear cryptocurrency rules has consequences. American markets function best when their participants understand the rules of the game. Institutional, corporate and retail investors alike deploy capital when they can assess risk appropriately.

Entrepreneurs flourish when they can anticipate regulatory hurdles, costs and legal ramifications. Similarly, consumers are incentivized to engage with new products and in new markets when they trust that proper protections are in place.

Unfortunately, America’s crypto regulatory landscape is rife with ambiguity. As such, a patchwork of overlapping federal and state authorities, inconsistent enforcement, and legal gray areas exists.

This type of uncertainty slows innovation and hinders competition. That is why it’s essential that Congress pass the CLARITY Act before the midterm elections bring legislating in Washington to a halt.

Passing the CLARITY Act is important for three reasons.

First, markets function better with clear rules generally and the right guardrails specifically. Uncertainty raises costs and suppresses participation. A more defined framework, as provided by this legislation, would increase liquidity, improve price discovery and make digital asset markets more efficient.

As the Senate Committee on Banking, Housing and Urban Affairs explained, “The bill establishes clear rules of the road by drawing a bright line between [Securities and Exchange Commission] and [Commodity Futures Trading Commission] jurisdiction and replacing the SEC’s regulation-by-enforcement model with a workable statutory framework.”

When Washington’s rules are unclear, the costs borne primarily by new market entrants or startups to simply figure out what is allowed become barriers to entry.

This results in a market that favors incumbents, not because they are more innovative but because they are more resilient to the embedded complexity. In no uncertain terms, regulatory ambiguity serves as a silent subsidy for existing, and often much larger, market participants.

Next, the CLARITY Act fosters competition by leveling the playing field. That should garner support from both sides of the aisle. By defining the jurisdictional boundaries of federal agencies, clarifying asset classifications and establishing consistent oversight frameworks, the CLARITY Act reduces the compliance burdens that otherwise would disadvantage new market entrants.

Competitive markets crave properly structured regulations.

Finally, the CLARITY Act will drive innovation. It protects the rights of software developers while promoting responsible DeFi innovation.

For example, by drawing a clear line between regulated financial intermediaries and software developers, the act protects builders who do not control customer funds and fosters a safer environment for innovation.

As President Trump noted in his call to action on the bill, if this legislation fails, then America risks losing innovation to offshore competitors.

What are the risks if this bill doesn’t advance? They are significant. Coin Center Executive Director Peter Van Valkenburgh said a delay in passage risks leaving the industry vulnerable to shifting political priorities and enforcement actions. He further warned that, without CLARITY, “the Securities and Exchange Commission (SEC) could revoke existing interpretive guidance and treat a broad range of crypto assets as securities, potentially sweeping developers and infrastructure providers into regulatory categories such as brokers, dealers or exchanges.”

That would be a bad recipe.

The CLARITY Act will foster a more competitive, innovative and resilient financial system. Its significance lies not only in the specific rules it establishes but also in the signal it sends: The U.S. is committed to being the global crypto hub.

A recent World Economic Forum analysis highlights that “this year is pivotal for scaling digital asset solutions responsibly.” It goes on to say that, regarding this legislation, “Greater policy certainty enables responsible innovation and gives businesses the confidence to scale.”

Sean Lee, an adviser to the Crypto Council for Innovation, recently wrote, “Legislative tracking and market analysis indicate the CLARITY Act is expected to advance through markup [this month] with bipartisan support.”

Let us hope these predictions are accurate. Tens of millions of U.S. investors, financial entrepreneurs and America’s financial leadership all depend on it.

• Nam D. Pham is managing partner at ndp | analytics, an economic and communication research firm, and an adjunct professor at The George Washington University School of Business.