This news segment and analysis is brought to you by Kelman Law, a firm specializing in digital asset commerce. The following opinion and legal editorial was written by Michael Handelsman for Kelman.Law.
For years, the cryptocurrency industry has complained loudly about the lack of clear regulations in the United States. Industry leaders, founders, and investors have long criticized what they describe as "regulation by enforcement," pointing to overlapping federal jurisdictions, a hostile regulatory climate, and the perpetual uncertainty surrounding whether specific digital assets should be classified as securities or commodities.
Yet, as the year 2026 unfolded, the industry appeared closer than ever to obtaining the comprehensive regulatory framework it had spent a decade demanding. Republicans held control of Congress, the broader administration actively supported cryptocurrency innovation and market development, and the Digital Asset Market Clarity Act—widely known as the CLARITY Act—had already cleared the House of Representatives with overwhelming, bipartisan support.
And yet, despite these seemingly insurmountable structural and political advantages, the legislation ultimately failed to advance through the Senate, leaving the digital asset ecosystem back where it started.
Now, former House Financial Services Committee Chairman Patrick McHenry is arguing that the cryptocurrency industry has only itself to blame for the collapse of the legislative effort. In a candid November 6, 2026, interview with journalist Eleanor Terrett, McHenry offered an unvarnished assessment of what went wrong on Capitol Hill. He heavily criticized industry participants for rejecting achievable, workable compromises in a quixotic pursuit of legislation that was politically unattainable at the time. His core message was as simple as it was stinging: the cryptocurrency industry had a historic opportunity to secure meaningful, binding regulatory clarity, held out for something better, and ultimately walked away with nothing.
For cryptocurrency businesses operating within the United States, McHenry’s blunt remarks raise an uncomfortable and defining question: Did the industry sacrifice achievable legal certainty in pursuit of a utopian regulatory framework that may now be years away from realization?
McHenry: The Cryptocurrency Industry Had Its Chance and Blew It
Patrick McHenry has long been recognized as one of the most influential and effective congressional advocates for cryptocurrency legislation. During his influential tenure as Chairman of the House Financial Services Committee, he worked tirelessly behind the scenes and in the public eye to advance legislation intended to clearly define how federal securities and commodities laws apply to the rapidly expanding digital asset class.
Because of his track record, his criticism carries considerable weight across Washington and the crypto sector alike. In remarks reported following his appearance on Bloomberg Television, McHenry accused cryptocurrency industry participants of rejecting workable legislative compromises because they genuinely believed they possessed the political leverage to extract more favorable terms. At the same time, he acknowledged that he shared a degree of responsibility for the ultimate outcome, a rare and significant admission in modern partisan politics.
This admission underscores the complex reality that the CLARITY Act’s ultimate failure cannot fairly be attributed to any single bad actor or isolated political party. The high-stakes negotiations involved a sprawling coalition of cryptocurrency companies, traditional financial institutions, congressional Republicans and Democrats, and competing federal regulatory priorities. Nevertheless, McHenry’s broader critique deserves serious consideration by anyone invested in the future of blockchain technology.
There is a vast, meaningful difference between flatly rejecting legislation because it imposes unworkable, punitive requirements on an emerging industry and refusing to accept a compromise simply because it fails to address every single concern of every market participant. McHenry’s assessment suggests that prominent voices within the cryptocurrency ecosystem crossed that fine line.
What Happened to the CLARITY Act?
To understand the magnitude of the missed opportunity, it is necessary to examine what the CLARITY Act was designed to achieve. The legislation was crafted to resolve one of the most persistent, structural problems facing cryptocurrency businesses: the ongoing uncertainty over precisely which federal regulator—the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC)—held jurisdiction over particular digital assets and secondary market transactions. Furthermore, the bill sought to establish clear registration requirements, consumer protections, and federal compliance standards for digital asset businesses.
The House of Representatives successfully passed the legislation on July 17, 2025, by a commanding, bipartisan vote of 294 to 134. However, the Senate proved to be a significantly more formidable hurdle. On September 15, 2026, the Senate held a procedural vote on whether to proceed with formal consideration of the CLARITY Act. According to the Senate’s official voting record, the motion failed by a narrow margin of 49 to 50, falling well short of the critical 60 votes required to invoke cloture and overcome procedural filibusters.
Importantly, this was a procedural vote rather than a final, up-or-down vote on the merits of the legislation itself. Even so, the procedural defeat effectively stalled the bill in its tracks, leaving the cryptocurrency industry without the comprehensive federal regulatory framework it had sought for years.
Why Did the CLARITY Act Fail?
While McHenry’s primary critique focuses on the industry’s internal unwillingness to compromise, the legislative breakdown was driven by several overlapping disagreements, competing commercial interests, and shifting political realities.
One of the most contentious flashpoints involved whether cryptocurrency platforms and exchanges should be permitted to pay interest or yield rewards on stablecoin balances. Coinbase CEO Brian Armstrong emerged as a prominent, vocal advocate for preserving stablecoin rewards, a position that immediately put his company at direct loggerheads with traditional banking lobbies.
The GENIUS Act, which was enacted earlier in 2025, had already prohibited permitted payment stablecoin issuers from paying interest or direct yield to holders. However, that statute did not impose an equivalent, blanket prohibition on rewards offered through third-party platforms, such as cryptocurrency exchanges. Traditional commercial banks argued vehemently that allowing crypto platforms to offer interest-like payments on stablecoins would encourage everyday consumers to migrate their bank deposits out of traditional institutions, potentially shrinking the pool of capital available for broader lending and credit creation in the economy.
Coinbase took the opposing view, arguing that consumers should rightfully be permitted to earn yields on their stablecoin holdings and that legacy banks were simply attempting to stifle innovative competition. This fierce disagreement had immediate consequences for the CLARITY Act. In January 2026, Coinbase temporarily withdrew its corporate support for an earlier version of the legislation due to strict limitations affecting stablecoin rewards, contributing directly to the abrupt cancellation of a planned Senate Banking Committee markup.
After months of grueling negotiations, lawmakers finally forged a compromise in May that prohibited interest-like payments for simply holding stablecoins while preserving certain rewards tied to legitimate, active platform participation. As reported when the compromise emerged, Armstrong ultimately supported moving forward with the revised statutory language.
Nevertheless, the protracted dispute had already consumed invaluable negotiating time, and traditional banking groups continued lobbying aggressively for tighter restrictions as the crucial September vote approached. The episode illustrates McHenry’s broader point: rather than prioritizing a comprehensive regulatory framework that would benefit the entire digital asset industry as a whole, individual market participants frequently prioritized provisions that protected their own specific business models.
While Armstrong’s position was commercially understandable from the perspective of maintaining corporate competitiveness, the broader question remains whether protecting particular revenue streams was truly worth jeopardizing a generational opportunity to pass comprehensive federal cryptocurrency legislation.
Beyond financial turf wars, political and ethics concerns also became major obstacles during the legislative process. Democratic lawmakers raised sharp concerns regarding potential conflicts of interest among government officials involved in cryptocurrency ventures, including businesses with ties to President Trump. As negotiations progressed, Republican lawmakers incorporated numerous Democratic proposals into revised drafts, including heightened ethics and disclosure provisions. Yet, despite these concessions, the changes failed to secure the necessary bipartisan cushion of support, demonstrating the gulf between general support for crypto regulation and agreement on its exact terms.
Compounding these policy battles was the relentless ticking of the clock. As the November 2026 midterm elections drew nearer, cryptocurrency legislation became inextricably entangled in broader, highly polarized political disputes. McHenry repeatedly argued that the Senate should have moved the legislation forward much earlier in the cycle, before election-year politics completely poisoned the well. Unfortunately for the industry, the political environment has now shifted dramatically.
The 2026 Midterm Elections Changed Everything
The outcome of the November 2026 midterm elections delivered a profound setback to the industry’s legislative strategy. Democrats secured control of both chambers of Congress, fundamentally altering the political landscape that had previously favored the passage of pro-crypto bills. As political analysts observed following the election results, the shift substantially diminished any remaining likelihood that the CLARITY Act could advance in its existing form.
The digital asset industry now faces the prospect of negotiating with a congressional leadership structure that prioritizes heightened regulatory oversight, rigorous consumer protections, and strict conflict-of-interest rules. This does not mean comprehensive cryptocurrency legislation is permanently dead, as the bipartisan House vote proved that broad support exists across party lines. However, any future legislative packages will almost certainly require significant concessions that are far less favorable to the industry than the terms available in 2026. McHenry’s warning resonates heavily in this altered reality: the legislation that was politically achievable at that moment may well be more favorable than anything Congress is willing to enact in the foreseeable future.
The GENIUS Act Demonstrates What Legislative Compromise Can Accomplish
The failure of the CLARITY Act stands in sharp contrast to the industry’s earlier legislative success regarding stablecoins. In July 2025, the United States successfully enacted the GENIUS Act, establishing a dedicated federal regulatory framework for payment stablecoins. While that legislation did not resolve every single debate surrounding stablecoins, it provided crucial statutory rules governing permitted issuers, reserve backing, redemption obligations, and federal supervision.
The contrast between the two legislative efforts is instructive. The stablecoin framework became law because stakeholders were willing to accept bounded compromises, while the broader market structure framework remains completely unresolved. McHenry has acknowledged that the strategic decision to pursue stablecoin legislation separately from broader market structure bills is worth re-evaluating.
Whether combining the legislative efforts would have yielded a better overall outcome is impossible to know for certain. However, the results raise a fundamental strategic question for digital asset businesses: Would the industry be better served by pursuing narrower, achievable legislative reforms rather than insisting on a single, all-encompassing regulatory framework?
What Does the CLARITY Act’s Failure Mean for Cryptocurrency Businesses?
The most immediate consequence of the legislative stalemate is that cryptocurrency businesses must continue operating within a patchwork regulatory framework that was never originally designed to accommodate digital assets. Although federal financial regulators have recently adopted a more accommodating approach toward cryptocurrency innovation, shifting administrative policies do not provide the same permanent legal certainty as statutes enacted by Congress. Several critical areas of legal risk and uncertainty remain.
Token issuers must continue rigorous evaluations to determine whether their digital assets or associated transactions implicate federal securities laws. Businesses cannot simply assume that a token falls outside the SEC’s jurisdiction merely because the political winds at the executive level have shifted toward a more favorable posture. Token distributions, secondary market trading, decentralized staking arrangements, and other core activities still require meticulous legal analysis.
Furthermore, the absence of comprehensive federal legislation does not eliminate existing licensing obligations at either the federal or state level. Depending on their specific operations, cryptocurrency exchanges, non-custodial and custodial wallet providers, and payment processors remain subject to federal Financial Crimes Enforcement Network (FinCEN) registration, state money transmitter licensing laws, and a maze of state-level regulatory frameworks. Companies must not assume that welcoming federal rhetoric supersedes state compliance mandates.
Federal administrative agencies will undoubtedly continue issuing interpretive guidance and rulemaking addressing digital assets within their existing statutory authority. However, administrative interpretations can change rapidly, regulatory priorities shift with every election cycle, and agency actions are frequently contested in federal courts. For businesses making substantial, long-term capital investments, these limitations matter deeply. A company that structures its core operations around a temporary regulatory interpretation could face catastrophic compliance liabilities if that interpretation is reversed by a future administration. Political support is never a permanent substitute for statutory legal certainty.
Is the CLARITY Act Completely Dead?
Not necessarily. Congress could theoretically revisit the legislation during a post-election lame-duck session, though doing so would require an extraordinary bipartisan push to overcome the exact disagreements that derailed the bill in September. If comprehensive legislation fails to pass before the current Congress adjourns, lawmakers will be forced to start entirely from scratch in the next Congress, a process that will introduce drastically different political dynamics and regulatory demands.
Another distinct possibility is that Congress will abandon the pursuit of a massive, comprehensive framework and instead pivot toward targeted, narrower legislation. Potential areas for piecemeal reform include statutory asset classification, explicit CFTC spot-market jurisdiction, bespoke cryptocurrency taxation rules, and modern custody requirements. Smaller legislative efforts are frequently easier to negotiate and pass, particularly where narrow bipartisan consensus already exists. Even so, in the absence of a unified framework, cryptocurrency businesses will likely continue navigating overlapping regulatory obligations and unresolved legal questions for the foreseeable future.
Conclusion: A Missed Historic Opportunity
Patrick McHenry’s public critique of the cryptocurrency industry is unusually blunt, all the more so coming from a lawmaker who spent years championing the very legislation the industry sought. His central argument is that cryptocurrency businesses had a realistic, achievable opportunity to secure comprehensive regulatory reform but undermined their own success by refusing to accept necessary compromises. While the fairness of that assessment remains a subject of ongoing debate—given the genuine political obstacles, ethics disputes, and competing interests involved—the final outcome is difficult to dismiss.
The cryptocurrency industry entered 2026 equipped with a supportive administration, favorable congressional majorities, substantial financial resources, and a genuine bipartisan appetite for reform. Despite holding all of these structural advantages, comprehensive market structure legislation ultimately failed to cross the finish line.
After years of demanding regulatory clarity, the cryptocurrency industry may have squandered its best and most viable opportunity to obtain it. For cryptocurrency businesses navigating this complex environment, the core lesson is straightforward: companies cannot build their long-term operational futures on the precarious assumption that favorable legislation is always just around the corner. Instead, market participants must continue to operate prudently within the legal framework that exists today, rather than the one they hope Congress might eventually enact.
Attorney Advertising. This article provides general information and does not constitute legal advice.
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
