Crypto Faces a 3-Year Test if Clarity Act Fails

The Clarity Act could unlock an expectation-led rally, while failure may leave markets stuck in “wait and see” mode.

The Clarity Act was approved by the US House in July 2025 with support from both parties. As of January 2026, the legislation remains under review in the Senate. The bill is being considered by the Senate Committee on Banking, Housing, and Urban Affairs, while the Senate Agriculture Committee is providing input on CFTC-related provisions.

Senate committees have held hearings and released draft proposals as part of wider market structure legislation. However, markups have been delayed as lawmakers debate issues, including investor safeguards. Differences between Senate drafts and the House-passed bill are still being worked through.

Bitwise Chief Investment Officer Matt Hougan said that if the Clarity Act does not pass, the US crypto market would enter what he described as a critical “show me” period, during which the industry would have roughly three years to prove that crypto is indispensable to everyday Americans and to the traditional financial system.

Regulatory Limbo Concerns

According to Hougan, if the bill does not pass, the current pro-crypto regulatory environment would not be cemented into law, leaving it vulnerable to reversal by a future administration. He argued that without legislative clarity, crypto’s future growth would depend less on policy expectations and more on demonstrable real-world adoption. Hougan said this would place pressure on the industry to show that use cases such as stablecoins, tokenized securities, and blockchain-based financial infrastructure are being actively adopted at scale.

He compared this scenario to the early years of companies like Uber and Airbnb, which operated in regulatory gray areas but eventually became so widely used that lawmakers were forced to adapt regulations to reflect their realities. The Bitwise exec said that crypto would need to follow a similar path if Clarity fails.

However, Hougan warned that the outcome would not be guaranteed. If, after several years, crypto is still perceived as operating on the fringes of the financial system, a change in political leadership could result in serious challenges. In that case, investors would wait for clear proof of real-world adoption before rewarding prices. He said this contrasts with a scenario where the Clarity Act passes in a form the industry supports, which he expects would lead to a sharp market rally as investors assume the growth of stablecoins, tokenization, and other crypto use cases is locked in.

Friction Within The Industry

While lawmakers continue to debate the Clarity Act’s final form, there have been reports of growing public friction within the industry. Earlier this month, Citron Research accused Coinbase CEO Brian Armstrong of opposing the act to protect Coinbase’s stablecoin yield business from increased competition.

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The allegations emerged after Coinbase decided to withdraw support for the bill on January 14. The exchange had cited concerns over tokenized equities, DeFi privacy, stablecoin rewards, and the shifting of regulatory authority toward the SEC. Citron claimed that Armstrong feared competition from firms like Securitize.