Millions of people invest in cryptocurrency to grow their money, get in on a new technology or diversify their portfolios. But unlike banks and credit unions, cryptocurrency platforms haven’t had to follow the same rules to keep their investors’ money safe from misuse. But on Tuesday, the Senate could change that.
That gap has led to major scandals, like the collapse of cryptocurrency trading company FTX, that cost investors billions of dollars. Now, U.S. lawmakers could try to catch up with the technology through the CLARITY Act, a bill that would create new rules for cryptocurrencies and the platforms that hold them.
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Many in the crypto industry support the bill, arguing it would finally give U.S. regulators real authority over digital assets. But critics say it doesn’t go far enough to protect investors — and that the Commodity Futures Trading Commission, which would oversee some cryptocurrencies under the bill, doesn’t have the size or experience to regulate a market this large.
What does the CLARITY Act do?
For years, the CFTC and Securities and Exchange Commission have fought over who’s in charge of cryptocurrencies. Earlier this year, the two agencies released new guidance on how they’d regulate digital currency, but that guidance isn’t law, and either agency could change it without Congress.
The CLARITY Act would codify that same approach, sorting crypto into categories and assigning a regulator to each. The defining distinction: if a coin’s value comes from people using a decentralized network — like Bitcoin — it’s a commodity, and the CFTC takes control. If it’s more like a traditional investment — betting on a company or team — the SEC has authority. Once categorized, any exchange or app that lets users buy, sell or store crypto must register with the CFTC or SEC and follow the new rules.
The bill also requires platforms to keep investors’ crypto separate from their own funds — unlike a bank, which can lend out deposits. Platforms must follow capital and security standards in case something goes wrong that isn’t the investor’s fault. Regulators would actively watch for fraud instead of only reacting after the fact, a direct response to the FTX collapse, where billions in investor money were misused before regulators caught on.
Customers would see direct changes too, like more disclosures and risk warnings before buying, and, if a platform goes under, a legal framework for sorting out investors’ money before creditors get paid.
But the bill has limits. If a hacker steals an investor’s crypto, the new rules help show what should have been in place and give the investor a legal claim. But they don’t guarantee the money comes back, since crypto still lacks the deposit insurance a bank account has.
Why it has support
Supporters say the CLARITY Act fills a real regulatory gap that regulators have struggled to enforce. Sen. Tim Scott, R-S.C., who chairs the Senate Banking, Housing and Urban Affairs Committee, said the bill would “protect Americans’ hard-earned money.” Others like Sen. John Boozman, R-Ark., who led the Agriculture Committee’s portion of the bill, said it’s an opportunity to create clear rules that will protect consumers and strengthen the market.
“We cannot afford to wait any longer,” Boozman said. “This legislation is the result of more than a year of negotiations with our colleagues and conversations with stakeholders to get the details right.”
Supporters also say the bill addresses long-standing frustration with how regulators have handled crypto fraud in the past, something known in the industry as “regulation by enforcement.” They say the SEC has sued companies after something goes wrong instead of writing clear rules in advance. The SEC’s own guidance document, released with the CFTC in March, cites past criticism from its commissioners making that same point.
Not everyone supports the bill
One major concern is capacity. The CFTC ran last year with roughly 556 employees compared to the SEC’s more than 4,000, according to Forbes, and operates on a budget nearly six times smaller. That gap grew over the past year as CFTC staff shrank by roughly 21%.
The agency’s own inspector general named digital asset regulation one of its top management risks for this year. Critics argue that a small, recently shrunk agency overseeing a multi-trillion-dollar market, without guaranteed new funding, risks leaving major enforcement gaps regardless of what protections the bill includes, Bloomberg Law reports.
State regulators are also pushing back on the bill. On Monday, 18 attorneys general led by New York’s Letitia James urged the Senate to reject the bill. The group warns the bill’s language could block states from pursuing crypto fraud themselves. The letter cited an FBI finding that Americans lost $11.4 billion to crypto-related scams last year. States argued that they need to keep enforcement power rather than cede it to federal regulators.
“As written, the Clarity Act would embolden scammers and potentially strip attorneys general of our authority to protect our states’ investors and their wallets,” James said.
What’s next?
The bill’s fate comes down to a cloture vote in the Senate Tuesday. Senators need 60 votes to move the CLARITY Act to a formal debate. That means Republicans, who hold 53 seats, require at least seven Democrats to cross over. If it fails, the bill is widely considered dead for the rest of the year.
But bipartisanship could play out in this vote. Just a day before the vote, the bill’s chief negotiators released the final text saying it reflects more than 120 changes requested by Democrats. This includes new ethics language addressing officials’ personal crypto holdings. Whether that’s enough to win over the Democrats required for passage will become clear Tuesday afternoon.
