Why Crypto Rallied When Clarity Failed

Crypto sacrificed long-term certainty for better rules, faster. That’s not a bad tradeoff.

Two weeks ago, the Clarity Act failed in the U.S. Senate. After three years of hard-fought negotiation, it couldn’t get the 60 votes it needed to advance.

In response, crypto… rallied?

That’s right, and “rally” actually seems an understatement. Since the vote, Bitcoin is up 8% and Ethereum is up 7%, but many crypto assets are up much more: NEAR +104%, Uniswap +49%, Avalanche +43%, and so on. Crypto stocks have done well, too. 

You might be wondering: Why? The crypto industry fought for this bill. Why would it rally when the bill died?

The answer is that in many ways crypto is better off without Clarity than it would have been with it. The industry backed the bill for the certainty it promised, but it compromised on many things in the negotiations. After its failure, regulators have stepped in with actions that are more aggressively pro-crypto than anything the bill contemplated.

In this week’s Memo, I’ll cover four specific areas of crypto that benefited from Clarity’s failure, as well as one lingering risk.

Winner #1: Stablecoins

One of the biggest fights in the Clarity negotiations was between banks and crypto over stablecoin interest. Banks wanted to prevent exchanges like Coinbase from passing interest earned from stablecoins to customers. They refused to support early versions of the bill that allowed even small amounts of it.

Mostly, the banks won. The final text banned platforms from paying stablecoin interest or yield “in any form” to customers, with penalties up to $5 million per violation. But in winning the battle, the banks lost the war.

The bill’s demise means that the Genius Act, which Congress passed in 2025, is still in effect. Genius bars stablecoin issuers from paying interest but says nothing about exchanges. That silence is a giant opening: Platforms can pay “rewards” on stablecoin balances with no federal limit at all.

The biggest winner is Coinbase, which uses stablecoin rewards to attract customers. The great irony for banks is that their refusal to compromise will likely end up helping every stablecoin take market share from the traditional system. 

Winner #2: Crypto Exchanges

Clarity would have changed how spot crypto exchanges like Coinbase are regulated in two ways.

First, it would have created a national license for spot crypto exchanges. Today, exchanges cobble together licenses state by state. Getting 50 of them is a slog, which is one reason there are so few national crypto exchanges. Clarity would have made it easier for traditional financial giants to compete. Without it, Coinbase and established competitors like Kraken effectively keep their moat. That’s a win for the incumbents.

The bigger change was structural. In traditional markets, the exchange (e.g., NYSE) and the broker (e.g., Charles Schwab) are separate businesses. In crypto, one firm does both. That’s lucrative. Clarity would have limited exchanges’ ability to bridge these two services, raising costs. That’s now off the table. Advantage: exchanges. 

Winner #3: Tokenization Platforms

Every asset will eventually trade as a token. That strikes me as inevitable. The speed with which we get there, however, is anything but.

Clarity directed the SEC to study how tokenized securities should be treated. That sounds like a win, but in practice, a study and the rulemaking that follows would have taken years.

Instead, two days after Clarity failed, the SEC issued an order letting tokenized U.S. stocks trade immediately through permissioned automated market makers and liquidity pools, the same plumbing DeFi runs on. The order exempts the venues from registering as “exchanges” and the liquidity providers from registering as “dealers.” That moves them outside the rulebook written for traditional stock exchanges.

The order has limits. It runs five years, covers only listed U.S. stocks, and caps how much volume each venue can handle. But crypto was happy to trade years of theoretical study for immediate real-world experimentation.

The biggest winner here is Securitize (SECZ), which tokenizes funds for BlackRock, Apollo, and KKR. (It’s the transfer agent behind BlackRock’s BUIDL.) But every direct tokenization play benefits to some degree.

Winner #4: Revenue-Generating Tokens

Many of the best-performing tokens since the vote are ones that use protocol revenue to buy back their own supply. Hyperliquid (+15%), NEAR (+104%), Uniswap (+49%), Lighter (+10%), and Pump (+19%) all do this.

One reason for their success is that, oddly, revenue-generating tokens have clearer rules without Clarity than they would have had with it.

Under Clarity, a crypto asset could move from SEC to CFTC jurisdiction by qualifying as a “digital commodity.” But the rules were murky, and certain actions by an issuer could push a token back into “security” status. Would a buyback count? Nobody could say for sure.

With Clarity gone, the SEC published an FAQ that answered the question directly: Once a network is functional, announcing a buyback program does not make its token a security.

This is a great example of why Clarity’s failure was a blessing in disguise. Clarity’s language was carefully negotiated and sometimes vague, leaving challenging legal questions—like what makes a crypto asset a security—open to interpretation. But now that Clarity’s in the rearview, the SEC has felt emboldened to clarify its existing guidance. That lets the industry move forward.

The Biggest Risk

The obvious risk from Clarity’s failure is that regulation is not legislation. A new administration in January 2029 could install a new SEC and CFTC, and they could take a harder line on crypto.

But I’m not overly worried. Two years is a long time. By 2029, the largest financial firms in the world will have been building on blockchains for years. I think it’s unlikely a new SEC or CFTC unwinds that. At that point, I expect crypto to be too big to crush.

It’s a risk worth watching, but it also sums up the trade: Crypto sacrificed long-term certainty and got better rules, faster. A law would have locked in the compromise and delayed implementation.

The market, it seems, thinks crypto got the good end of the deal.

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.

Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.

The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.