The Clarity Act Standoff

Why Crypto's Most Important Bill Is Also Its Most Divisive

The U.S. crypto market just endured its sharpest correction since 2022. Bitcoin has fallen roughly 47% from its October 2025 all-time high of $126,000, briefly touching $60,000 in early February. Ethereum is down over 50%. More than $3–4 billion in leveraged positions were liquidated in a single week. VanEck flagged Bitcoin's February 5 sell-off as a -6.05σ event — one of the fastest single-day crashes in crypto history.

The market's pain has many drivers — global risk-off sentiment, tech equity sell-offs, a stronger dollar, leverage unwinds. But Treasury Secretary Scott Bessent is pointing the finger somewhere specific: at the crypto industry itself.

Bessent's Message: Pass the Bill or Leave

In a CNBC interview on February 14, Bessent said passage of the Digital Asset Market Clarity Act, commonly known as the Clarity Act,  would bring calm to crypto markets. He called the current volatility "self-induced," directly implicating crypto firms that have stalled the legislation.

His language has escalated sharply over recent weeks. During Senate Banking Committee testimony on February 5, Bessent labeled industry opponents "nihilists" who "would prefer no regulation over this very good regulation." His directive was blunt: any participants who don't want the Clarity Act "should move to El Salvador." In a subsequent TV appearance, he went further, describing them as "recalcitrant actors."

The target of these remarks, though Bessent didn't name names, is unmistakable: Coinbase.

The Stablecoin Yield Fight

The Clarity Act passed the House in July 2025 with strong bipartisan support (294-134). It would create the first comprehensive U.S. regulatory framework for digital assets, defining which tokens are commodities (regulated by the CFTC) versus securities (SEC jurisdiction), establishing disclosure requirements, and codifying rules for exchanges, custody, and decentralized finance.

The Senate version, however, introduced a provision that changed the dynamics entirely: a restriction on stablecoin yield payments to consumers.

The banking lobby argued that allowing crypto platforms to pay yield on stablecoins could trigger deposit flight from traditional institutions, threatening community bank lending to agriculture, small business, and real estate. Bessent himself acknowledged these concerns during his Senate testimony, stating, "deposit volatility is very undesirable."

For Coinbase, this is an existential business issue. Stablecoin-related revenue, primarily from its USDC partnership with Circle, contributed an estimated $1.3 billion in 2025, roughly 20% of total revenue. On January 14, CEO Brian Armstrong withdrew Coinbase's support for the bill, writing: "We'd rather have no bill than a bad bill."

The Senate Banking Committee immediately postponed its markup session. The White House reportedly called Coinbase's move a "rug pull" and warned that operating "indefinitely without a comprehensive regulatory framework" amounts to "pure fantasy."

The Industry Is Split

Armstrong's decision exposed a rift within the crypto industry itself. Andreessen Horowitz's Chris Dixon publicly disagreed, posting, "Now is the time to move the CLARITY Act forward." Ripple CEO Brad Garlinghouse expressed support for the legislation, arguing that concerns could be resolved during negotiations. The White House's crypto czar David Sacks urged the industry to use the delay to "resolve any remaining differences."

Even Sen. Mark Warner (D-VA), one of the bill's key Democratic negotiators, captured the exhaustion in the room: "I feel like I'm in crypto hell."

Coinbase has since returned to the negotiating table, but the stalemate persists. Sen. Angela Alsobrooks (D-MD) and Sen. Thom Tillis (R-NC) are working on a stablecoin yield compromise, and Alsobrooks expressed optimism that a bipartisan deal remains achievable. SEC Chairman Paul Atkins has added urgency, warning that without legislation, any crypto-friendly rules his commission issues won't be "future-proof" — they can be reversed by the next administration with a single vote.

The Clock Is Ticking

Bessent's frustration reflects a real timeline problem. The 2026 midterm elections create a hard legislative deadline; if Democrats take the House majority, the political dynamics shift dramatically. As Bessent himself noted, the "prospects of getting a deal done will just fall apart."

Polymarket currently gives the Clarity Act a 62% chance of being signed into law by year-end, though that figure has swung between 50% and 72% as negotiations stall and restart. Bitwise CIO Matt Hougan has framed the legislation as a binary for the market: passage would trigger a "sharp rally" as investors price in the guaranteed expansion of blockchain finance, while failure would push crypto into a "slower ascent" contingent on proving real-world utility without regulatory backing.

What This Means

The Clarity Act is no longer just a regulatory debate. It has become the single highest-leverage variable in the crypto market, more impactful than any ETF approval, institutional adoption announcement, or protocol upgrade.

The paradox is striking: the industry fought for years to get a pro-crypto administration and a legislative framework. Now that both exist, the biggest obstacle to passage is the industry itself, specifically, a dispute over one revenue line at one company.

If a compromise on stablecoin yield can be reached, the bill likely moves quickly. If it can't, the U.S. crypto market faces another cycle of regulatory uncertainty, this time, one that's entirely self-inflicted.