Washington D.C., April 2025: A pivotal piece of legislation designed to bring long-awaited legal structure to the United States cryptocurrency sector faces a significant roadblock. According to a new analysis from global financial giant Citibank, the progress of the Crypto-Asset Market Structure Bill, known as the CLARITY Act, is slowing considerably. While seen as a key catalyst for legitimizing digital assets, complex negotiations, particularly around defining decentralized finance (DeFi), are pushing its likely passage date beyond 2026, creating extended uncertainty for the industry.
Crypto Market Structure Bill Hits Regulatory Snags
Citibank’s report, which cites ongoing legislative tracking, confirms that the CLARITY Act remains a central focus for lawmakers seeking to establish clear federal rules for digital asset trading, custody, and issuance. The bill aims to resolve jurisdictional tensions between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), a conflict that has persisted since the early 2010s with the rise of Bitcoin and subsequent altcoins. Its core promise is to provide a definitive answer to a fundamental question: when is a crypto asset a security, and when is it a commodity? This classification dictates which regulator oversees it, what disclosures are required, and how it can be traded by the public.
However, the path to consensus is proving arduous. Legislative staff and committee members are engaged in detailed, line-by-line negotiations over several controversial provisions. These debates are not merely procedural; they strike at the heart of how innovative, blockchain-based financial systems can coexist with traditional consumer protection and market integrity frameworks established over the last century. The delay signals that the complexity of translating decades-old financial law to a digital, decentralized context is greater than many initially anticipated.
The DeFi Definition: The Primary Hurdle for Legislation
Citibank identifies the single largest obstacle to the bill’s advancement: crafting a legally sound and technically accurate definition for decentralized finance. Unlike centralized exchanges like Coinbase or Kraken, DeFi protocols operate through immutable smart contracts on blockchains like Ethereum, often without a central company or clear point of control. This presents a profound challenge for regulators accustomed to licensing and examining specific legal entities.
The contentious debate revolves around a critical threshold: at what point do the developers of a protocol, the software code itself, or the decentralized autonomous organizations (DAOs) that govern them become “regulated service providers”? Lawmakers must balance several competing interests:
- Innovation vs. Protection: Overly broad definitions could stifle software development and open-source innovation by imposing burdensome regulations on developers worldwide. Conversely, overly narrow definitions could leave consumers vulnerable to fraud, hacks, and market manipulation in multi-billion dollar protocols with no accountable party.
- Jurisdictional Reach: Determining how U.S. law applies to globally accessible, permissionless software is a novel legal frontier. Precedents from early internet law are being examined, but the financial stakes are considerably higher.
- Technical Reality: Legislators are working to understand the nuances of liquidity pools, automated market makers, and governance tokens to avoid writing laws that are obsolete upon enactment or impossible to enforce.
This definitional quagmire has consumed disproportionate time in closed-door sessions, as getting it wrong could either cripple a burgeoning technological sector or expose the financial system to unmanaged risks.
Stablecoin Provisions Offer a Path to Compromise
In contrast to the DeFi impasse, Citibank’s analysis notes that the bill’s provisions regarding stablecoins—digital assets pegged to reserves like the U.S. dollar—present more fertile ground for agreement. The debate here often centers on the nature of the rewards or yields offered to holders of these assets. While disagreements exist over issuer requirements, reserve composition, and oversight between the Federal Reserve and state regulators, the report suggests there is “more room for compromise.”
This is largely because stablecoins more closely resemble traditional payment instruments and money market funds, frameworks that existing agencies understand. The key points of negotiation are more about *which* existing rules apply and *who* enforces them, rather than inventing entirely new regulatory categories from scratch, as is the case with DeFi. A potential path forward could involve advancing stablecoin-specific legislation separately, as seen in previous draft bills like the Clarity for Payment Stablecoins Act, to secure an early win while the broader market structure issues are resolved.
Historical Context and the Implications of Delay
The potential push beyond 2026 is not an isolated event but part of a longer pattern of slow-moving cryptocurrency regulation in the U.S. For context, the first major congressional hearings on Bitcoin occurred over a decade ago. The delay carries several concrete implications for various market participants:
- For Crypto Businesses: Extended regulatory ambiguity forces companies to operate under a patchwork of state laws and evolving SEC enforcement actions. This increases legal costs, limits banking relationships, and creates uncertainty for long-term investment and hiring plans. Some firms may continue to expand in jurisdictions with clearer rules, such as the European Union under its MiCA framework or specific Asian financial hubs.
- For Traditional Finance: Banks and asset managers like Citibank itself, which are eager to offer crypto-related services to clients, must continue their cautious, piecemeal approach. Large-scale product launches, like spot Bitcoin ETFs for other assets or tokenized fund platforms, may proceed more slowly without the legal certainty a comprehensive bill would provide.
- For Consumers and Investors: The lack of a unified federal regime means consumer protection standards remain inconsistent. It also postpones the potential for clearer tax treatment, retirement account inclusion, and broader, safer access to digital asset markets through fully regulated, mainstream channels.
The timeline also interacts with the political calendar. The latter half of 2026 will be dominated by the midterm election cycle, a period historically unfavorable for passing complex, non-partisan financial legislation. If consensus is not reached well before then, the bill could be effectively shelved until a new Congress convenes in 2027, resetting the legislative process.
Conclusion
Citibank’s assessment underscores a pivotal moment for U.S. cryptocurrency policy. The CLARITY Act represents the most concerted effort to date to build a coherent national framework for digital assets, but its ambition is colliding with the technical and philosophical complexity of regulating decentralized systems. The primary hurdle—defining DeFi—is a fundamental challenge that goes beyond typical financial regulation, touching on issues of software freedom, global jurisdiction, and the future architecture of markets. While stablecoin rules may offer a nearer-term compromise, the core crypto market structure bill now appears set for a longer journey. This anticipated delay past 2026 means the industry’s wait for legal clarity will extend, compelling businesses, investors, and regulators to navigate an uncertain landscape for years to come. The ultimate shape of the bill, whenever it arrives, will significantly influence whether the United States leads or follows in the global digital economy.
FAQs
Q1: What is the CLARITY Act?
The Crypto-Asset Market Structure Bill, or CLARITY Act, is proposed U.S. legislation aimed at creating a comprehensive federal regulatory framework for cryptocurrencies. Its main goals are to clarify whether digital assets are securities or commodities, assign clear regulatory authority between the SEC and CFTC, and establish rules for trading platforms and asset issuance.
Q2: Why is defining DeFi so difficult for this legislation?
DeFi protocols operate via decentralized software without a central company, challenging traditional regulatory models that require a licensed entity to hold responsible. Lawmakers must decide if and how to regulate software developers, smart contract code, or decentralized governance systems, balancing innovation with consumer protection in a global, digital context.
Q3: How does the delay to 2026 or later impact cryptocurrency companies?
It prolongs a period of regulatory uncertainty, increasing legal and compliance costs. Companies may delay major U.S. expansions or new product launches, and some may prioritize operations in countries with clearer regulations, potentially affecting innovation and job growth within the United States.
Q4: Are any parts of the crypto bill closer to agreement?
Yes. According to Citibank’s analysis, provisions related to stablecoins—particularly those governing their reserves and issuance—are seen as having more room for compromise. This is because stablecoins align more closely with existing frameworks for payment systems and money market funds.
Q5: What happens if the bill is not passed before the 2026 elections?
The 2026 midterm elections will likely shift legislative focus to campaigning. If the bill isn’t passed beforehand, the process could be reset in the new 2027 Congressional session, requiring the legislation to be reintroduced and committee work to potentially begin anew, causing further significant delays.
