Clarity Act speculation raises crypto sell-off fears

Cryptocurrency markets face renewed volatility as an Ethereum developer warns that expectations surrounding the United States’ CLARITY Act could trigger a deeper sell-off if lawmakers fail to deliver the regulatory breakthrough already anticipated by traders.

Econar, a long-time Ethereum builder and commentator, said digital assets could stage only a limited rise as speculation about the legislation intensifies. Failure to pass the bill could then push prices below levels they might have reached without the political optimism, he argued.

The warning reflects concern that traders are buying on expectations of favourable legislation without fully pricing in the possibility of delay, dilution or defeat. Such positioning can leave markets vulnerable when anticipated developments fail to materialise, particularly when leveraged investors are forced to close positions during a decline.

Bitcoin was trading around $64,000 after falling from an intraday high above $65,600, while Ether remained under pressure near $1,625. The weakness followed several sessions in which optimism about regulatory progress had supported digital assets and shares linked to the sector.

The Digital Asset Market Clarity Act seeks to establish a federal framework dividing responsibility for cryptocurrency oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission. The CFTC would gain broad authority over spot trading in digital commodities, while the SEC would retain jurisdiction over assets offered through investment contracts.

Supporters argue that clearly defining regulatory responsibilities would reduce uncertainty that has discouraged banks, investment funds and technology companies from expanding their digital-asset operations. The legislation would also introduce registration requirements for cryptocurrency exchanges, brokers and dealers operating in commodity markets.

The House of Representatives passed an earlier version of the measure in July 2025 by 294 votes to 134. The Senate Banking Committee advanced its version on May 14 this year by a 15-9 vote, with two Democrats joining Republicans.

The measure was subsequently placed on the Senate legislative calendar, making it eligible for floor consideration. It would still need 60 votes to overcome procedural barriers, reconciliation with separate Senate Agriculture Committee legislation and agreement with the House before reaching the president.

Negotiations have focused heavily on ethics provisions covering elected officials and their families. Democrats have demanded restrictions preventing public officials from issuing or promoting digital assets while holding office, amid concerns that government decisions could affect privately held cryptocurrency ventures.

Republican senators Cynthia Lummis and Bernie Moreno have worked with the White House on compromise language. Reports of progress on the ethics dispute helped Coinbase shares rise almost 10 per cent during one session, while stablecoin issuer Circle and several cryptocurrency mining companies also gained.

The response demonstrated how strongly traders are linking asset prices to legislative developments. Bitcoin rose towards $67,000 during the period of optimism, supported by renewed demand for exchange-traded funds. US-listed Bitcoin funds attracted about $727 million over five consecutive trading sessions, marking their longest sustained inflow streak since April.

Ether funds drew smaller inflows, suggesting that institutional investors remained more selective. Bitcoin products held about $79 billion in assets after recovering from a July low near $75 billion, strengthening the view that regulated investment vehicles are playing a larger role in short-term price formation.

That dependence can magnify losses when sentiment changes. ETF redemptions, leveraged futures liquidations and reduced liquidity during overnight trading can reinforce one another, turning an initial decline into a broader market contraction.

Political obstacles remain substantial. Senate Democrats are divided over whether the bill provides adequate consumer safeguards and whether its ethics language can be enforced independently. Progressive groups have also criticised lawmakers involved in negotiations, raising the political cost of supporting the measure before the midterm elections.

The Senate’s approaching August recess has added urgency. Failure to secure a vote before lawmakers leave Washington could delay consideration until a more crowded legislative period, reducing the chances of enactment this year.

Macroeconomic risks are also limiting investor confidence. Higher oil prices linked to Middle East tensions could add to inflation, complicating expectations for lower US interest rates. Cryptocurrency prices have increasingly moved alongside technology shares and other risk assets when investors reassess borrowing costs and global growth.

The Federal Reserve’s next policy decision and movements in long-term Treasury yields may therefore exert as much influence as congressional negotiations. Stronger yields tend to reduce demand for speculative assets that offer no fixed income, while looser financial conditions generally support cryptocurrency valuations.