This article originally appeared in Galaxy Research's weekly newsletter. Subscribe to get timely insights delivered to your inbox every Friday morning.
With odds fading for CLARITY Act passage in 2026, the Securities and Exchange Commission was poised to unveil major exemptions to safely promote crypto innovation, but later backtracked.
The SEC was set to unveil two long-awaited regulatory exemptions this week: Reg Crypto, which will create a new pathway for the primary issuance of cryptoassets to the public; and the Innovation Exemption, which will allow for secondary trading of tokenized securities in decentralized finance. Bloomberg had reported in May that the SEC was on the verge of publishing these exemptions, but the agency then backtracked after significant pushback from the traditional securities industry. New reporting suggested Tuesday that those exemptions were now imminent, but again the SEC appears to be backtracking after Eleanor Terret reported that the innovation exemption was again delayed. And late Thursday, the SEC published a notice about their planned Friday open meeting, which was believed to be about Reg Crypto.
The Commodity Futures Trading Commission is aggressively moving to cement its jurisdiction over prediction market contracts, which it argues are swaps under the Commodities and Exchange Act. This week the CFTC issued an emergency order seeking to countermand New York Attorney General Letitia James' effort to secure a nationwide temporary restraining order blocking Kalshi from offering event contracts (not just sports, bets: James sought to stop the firm from offering trades on “culture, elections, and other events,” emphasis added). The latest salvo follows months of lawsuits between prediction markets venues, U.S. states, and the CFTC, some involving events contracts generally, others focused on sports-related contracts, but all involving questions state vs. federal authority over these markets.
After the successful, bipartisan markup of CLARITY Act by the Senate Banking Committee in May, odds had climbed that the bill could pass the Senate before the August recess (which began on Aug. 7). But as the weeks wore on, several factors obstructed the bill's progress. First, the issue of increased ethics controls for government officials' involvement in crypto, which had been tabled throughout the committee’s processes, reared its head and could not be resolved despite substantial bipartisan efforts. Second, increased pressure from banks – community banks in particular – resulted in some backsliding of support for the bill even from Republicans. Third, calls for further weakening of the developer protections in the Blockchain Regulatory Certainty Act (BRCA) from illicit finance hawks swirled as a specter over the negotiations, though late-stage moderation on the issue by some law enforcement groups seemed to temper fears this issue could derail the bill. All of these factors made it difficult for Senate Majority Leader John Thune (R-SD) to corral the 60 votes needed to overcome a filibuster, and as the calendar waned into the August recess, he declined to call a vote. At the very end of the work period, Sen. Thune did finally "notice" the first vote on the bill, meaning the Senate now plans to vote on CLARITY when it returns from recess in mid-September.
OUR TAKE
The reality is that CLARITY is now much more about politics than policy. The bill is extremely comprehensive and includes registration and licensing requirements, new compliance responsibilities for service providers and new surveillance and sanctions authorities for government, substantial clarifications of law and regulation to protect consumers, and myriad other provisions that promote American leadership, investor protection, and regulatory clarity. None of that matters right now.
Without even considering the banks' lobbying on stablecoin yield or the low-grade simmer of the "illicit activity" issue, without a clear deal on the ethics issue – which a bipartisan group of Senators sent to the White House on Thursday, July 30, but to which the White House never publicly responded – there is likely no pathway to 60 votes in the Senate. Expecting a vote on the bill when the Senate returns in September would be optimistic if not quixotic, not just because these issues remain unresolved but because the September "session" is just 2-3 weeks long: the Senate reconvenes Sept. 14 and adjourns for midterm election activity around Oct. 2. The reality is that unless an initial "motion to proceed" vote happens almost immediately upon the lawmakers’ return to D.C., there will only be enough time for the CLARITY Act to pass the Senate if it dominates basically the entire working session. For these reasons, we are lowering our odds of CLARITY Act passage in 2026 to 10%.
Meanwhile, the SEC's closeness to producing both Reg Crypto and the “Innovation Exemption” (characterized by repeated starts and stops) are instructive both for CLARITY and for crypto policy during the rest of Trump's presidency. First, it's likely that the SEC previously delayed action on Reg Crypto and the Innovation Exemption at least in part to avoid interfering with the politics of the CLARITY Act. That the Commission is clearly close to acting on them now that CLARITY has stalled perhaps reflects an acknowledgement that the bill's odds are severely diminished. Note that Reg Crypto is substantially related to Title I of the CLARITY Act, and the Innovation Exemption directly overlaps with Sec. 10505.
If Senate negotiations may have been stalling the Commission’s announcements of Reg Crypto and the Innovation Exemption, other factors had been pressuring the agency from the other end to act. First, Commissioner Hester Peirce plans to vacate her seat in November (she is required by statute to vacate by the end of the 119th Congress), and it's not hard to imagine that the Commission wants to release these landmark actions before she leaves, given the depth and length of her work on these issues. Second, and more importantly, the Commission needs time for these initiatives. The specific initiatives, in particular the Innovation Exemption, are likely to be structured to offer a time-limited sandbox for issuers to try onchain trading of tokenized securities, the results of which will likely inform rulemaking on the topic. The authorization and occurrence of market activity in the sandbox, as well as the resulting rulemaking, are extremely likely to result in substantial litigation between market participants (particularly traditional finance stakeholders) and the Commission. Advancing these concepts from policy idea to formalized rule is likely to be a multiyear effort, and the Commission needs to start the clock as soon as possible. The urgency here from the Commission makes sense, and we commend it, but the competing pressures of both 1) a desire to advance crypto rulemaking while during this presidential term while 2) facing headwinds from CLARITY and backlash from the traditional securities industry account for the spasmodic nature of the rollout.
CLARITY Act passage remains a possibility, but we are firmly in "circus trick" territory – if it is to pass in 2026, we need magic. Regardless of the CLARITY Act's momentum or outcome, though, we now expect the Commission to publish the texts of Reg Crypto, the Innovation Exemption, or both over the next several weeks or couple months, another reminder that the crypto industry is poised for exciting times and a positive regulatory environment ahead even without CLARITY. – Alex Thorn
Legal Disclosure:
This document, and the information contained herein, has been provided to you by Galaxy Digital Inc. and its affiliates (“Galaxy Digital”) solely for informational purposes. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Galaxy Digital. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. Nothing contained in this document constitutes investment, legal or tax advice or is an endorsement of any of the stablecoins mentioned herein. You should make your own investigations and evaluations of the information herein. Any decisions based on information contained in this document are the sole responsibility of the reader. Readers should consult with their own advisors and rely on their independent judgement when making financial or investment decisions.
Participants, along with Galaxy Digital, may hold financial interests in certain assets referenced in this content. Galaxy Digital regularly engages in buying and selling financial instruments, including through hedging transactions, for its own proprietary accounts and on behalf of its counterparties. Galaxy Digital also provides services to vehicles that invest in various asset classes. If the value of such assets increases, those vehicles may benefit, and Galaxy Digital’s service fees may increase accordingly. The information and analysis in this communication are based on technical, fundamental, and market considerations and do not represent a formal valuation. For more information, please refer to Galaxy’s public filings and statements. Certain asset classes discussed, including digital assets, may be volatile and involve risk, and actual market outcomes may differ materially from perspectives expressed here.
For additional risks related to digital assets, please refer to the risk factors contained in filings Galaxy Digital Inc. makes with the Securities and Exchange Commission (the “SEC”) from time to time, including in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2025, filed with the SEC on November 10, 2025, available at www.sec.gov.
Certain statements in this document reflect Galaxy Digital’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Galaxy Digital’s views on the current and future market for certain digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance may vary substantially from, and be less than, the estimates included herein. None of Galaxy Digital nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Galaxy Digital and, Galaxy Digital, does not assume responsibility for the accuracy of such information. Affiliates of Galaxy Digital may have owned, hedged and sold or may own, hedge and sell investments in some of the digital assets, protocols, equities, or other financial instruments discussed in this document. Affiliates of Galaxy Digital may also lend to some of the protocols discussed in this document, the underlying collateral of which could be the native token subject to liquidation in the event of a margin call or closeout. The economic result of closing out the protocol loan could directly conflict with other Galaxy affiliates that hold investments in, and support, such token. Except where otherwise indicated, the information in this document is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. This document provides links to other Websites that we think might be of interest to you. Please note that when you click on one of these links, you may be moving to a provider’s website that is not associated with Galaxy Digital. These linked sites and their providers are not controlled by us, and we are not responsible for the contents or the proper operation of any linked site. The inclusion of any link does not imply our endorsement or our adoption of the statements therein. We encourage you to read the terms of use and privacy statements of these linked sites as their policies may differ from ours. The foregoing does not constitute a “research report” as defined by FINRA Rule 2241 or a “debt research report” as defined by FINRA Rule 2242 and was not prepared by Galaxy Digital Partners LLC. Similarly, the foregoing does not constitute a “research report” as defined by CFTC Regulation 23.605(a)(9) and was not prepared by Galaxy Derivatives LLC. For all inquiries, please email [email protected].
©Copyright Galaxy Digital Inc. 2026. All rights reserved.