Democratic midterm sweep sidelines crypto's Clarity Act, puts Trump dealings in focus

Democrats' sweep of Congress in the midterm elections has put the crypto industry on the defensive in Washington, with analysts predicting the sector's flagship market structure bill will stall and lawmakers turn instead to scrutiny of President Donald Trump's personal crypto dealings.

Crypto critics are back in force. Sherrod Brown of Ohio is returning to the Senate, and Senator Elizabeth Warren of Massachusetts retains significant influence over financial policy — a combination analysts expect to shape the next two years.

Clarity Act pushed to the back burner

"We see Sherrod Brown winning in Ohio as damaging the crypto industry's political clout as the industry worked to defeat him," Jaret Seiberg, TD Cowen's Washington analyst, wrote in a note. He added: "We did not think Clarity could advance over the next two years. This makes us more confident in our prediction."

The industry spent more than $200 million to sway the midterms, hoping to elect leaders who could push a comprehensive crypto market structure bill past the Senate, where the Clarity Act had stalled.

Seiberg said Democrats "will investigate Trump's crypto entanglements including World Liberty Financial," and warned the resulting political environment could make it impossible to advance a version of Clarity that the crypto sector would back. Mike Townsend, Charles Schwab's managing director of legislative and regulatory affairs, expects Democrats to push next year for a version of the bill that is "much tougher on cryptocurrency companies."

Beyond market structure, the industry's stated priorities include stablecoin innovation, decentralized finance development, banking access, tokenization and tax policy.

Bipartisan wins offer a counterweight

Kara Calvert, Coinbase's vice president of U.S. policy, said the results point to a historic shift in the makeup of the incoming Congress, with a record number of pro-crypto voices expected to join. "With last night's results, the 120th Congress is on track to have more new pro-crypto members than we've ever seen in any freshman class," she said.

Stand With Crypto, an advocacy nonprofit, counted 19 pro-crypto Senate candidates elected against eight it characterizes as anti-crypto, and 228 pro-crypto House candidates against 106. Fairshake, the super PAC launched in 2023 to back pro-crypto candidates in both parties, has won 29 of the 34 races it spent on, according to Reuters.

Dante Disparte, chief strategy officer at Circle, said his firm is ready for new Senate and House leadership but that it "may take longer to get Clarity tabled again." Joseph Chalom, CEO of ether treasury company Sharplink, expects the Clarity Act to remain on hold through 2028 while stablecoins and the tokenization of public equities advance under the SEC's five-year innovation exemption.

Market outlook

James Butterfill, head of research at CoinShares, said the blue wave's impact "should vary considerably across assets," with U.S. crypto equities more sensitive than bitcoin — particularly businesses reliant on new regulatory permissions. Established, compliant operators could even benefit from greater scrutiny of competitors, and miners with data centers already set up are likely to remain in high demand by AI hyperscalers. Near term, investors should expect more volatility.

Source: CNBC.