No one has any idea what's going to happen with the Clarity Act
1, 2, 3, 4... I declare a vibes war
No one has any idea what’s going to happen with the Clarity Act in the Senate.
Right now, lots of confident statements are getting made, but the statements about how this particular fight will turn out are, in fact, the actual fight.
The most illuminating statement came from Ron Hammond, a crypto lobbyist for Wintermute, the market making firm. Hammond told the FT:
“It’s still got momentum, and that’s the main killer or driver here. The second this bill loses momentum politically, I would consider it dead in the water, but right now, it’s got a lot of momentum.”
Hammond is right insofar as he points out that the most likely outcome will be the one that feels like it’s going to happen. At the end of the day, crypto legislation is a jump ball, and Senators will want to land on the winning side — whichever side that is.
The only thing everyone knows is that there are too many swing votes, too many frustrated stakeholders, too many unpredictable power brokers, to know just where everyone will come down. With that uncertainty, the best anyone can do is put messages out there that make it feel as if their side can pull it off.
None of them know what to believe right now. The messages people are putting out are acts of will. They are attempting to bend an uncertain universe to their expected outcome, by speaking that outcome into existence.
Schrödinger’s market structure legislation
You know the story of Schrödinger’s cat, right?
There’s a cat inside of a box with a vial of poison. The vial of poison has a mechanism on it that might break it, but it’s impossible to know that it will. It’s a coin flip. So, the theory goes, as far as you are concerned, the cat is both alive and dead.
The cat is in a superposition. That is, two possibilities are in fact both the actual reality until you, the observer, open the box and find out.
The Senate is a box like that right now. The Clarity Act is the cat. If the Clarity Act were put before the Senate right now, as written by the Banking Committee staff, no one knows if it would pass or fail.
And anyone who says they do know isn’t actually making a prediction. They are making an incantation.
Wish fulfillment
Hyperstition is the idea that simply by willing something it can become real. In particular, if enough people buy into a vision of the future, then that future will resolve from possibility to actuality.
It’s a theory of wish fulfillment, of emergent reality management.
You can make the argument that the United States, money itself and the persistence of James Bond movies are each hyperstitions.
When the internet started talking about storming Area 51 in 2019, the military facility where the government is believed to hide alien spacecraft, people really did show up for it, even if they didn’t get in or uncover craft. The idea actually did make something happen.
Bitcoin is also a hyperstition. What is code but speech? More and more people ran the code. More and more people had Bitcoin. Eventually someone went beyond mining bitcoin and bought some bitcoin.
And we were off!Right now, everyone who is talking about the Clarity legislation is engaging in hyperstition.
The theory goes that if enough people stare at the box and decide the cat is dead, the cat will be dead when it opens the box. If enough people talk at the Senate and say that it’s going to pass the Clarity Act, it will pass the Clarity Act.
The banks
This line from Crypto In America’s post today is illuminating:
But whether banks will be willing to negotiate in good faith remains to be seen. According to Matthew Wholey, founder of D.C. lobbying firm PolicyPartner, the banks are reportedly having a “good laugh over Coinbase’s own goal.” Wholey added, “Bankers fully intend to try to kill the bill for their own reasons and didn’t expect the crypto industry to implode upon its own signature piece of legislation.”
Are they really having a good laugh?
If no bill passes, banks will lose the one thing they have fought for. Rewards on stablecoin holdings will be allowed. If no one lifts a finger, the GENIUS Act becomes effective in a year.
If regulators promulgate rules, it becomes effective even sooner.
The GENIUS Act allows for the rewards on stablecoin deposits that the banks oppose. So if nothing happens, banks lose.
But if they can make it sound like they are confident and that they are serious and the crypto industry is bumbling, then that will make Senators more likely to listen to their counsel if this legislation proceeds.
And having spoken to bank lobbyists myself, I can believe that they are putting out the word that they are laughing at the crypto industry lobbyists. I sat in a coffee shop in D.C. several months ago and listened to bank industry lobbyists mock crypto industry lobbyists.
It sounded defensive then and it sounds defensive now.
The banking lobby didn’t take the blockchain trade groups seriously enough, came up short amidst GENIUS negotiations, and now they want to spin Coinbase as a clutz.
And anyone who says they do know isn’t actually making a prediction. They are making an incantation.
The banking lobbyists may want the banks they serve to believe that if Clarity fails now it will be easy to pass legislation that kills rewards in the new Congress. But will it? It may be that by the time they get to it, consumers will have started earning those rewards in their Coinbase and Kraken and Paypal accounts.
Who’s got the upper hand?
The crypto industry
Clarity was due for a vote last week before Coinbase, the country’s largest exchange and the leader of the industry in the U.S., pulled its support.
Meanwhile, much of the industry besides Coinbase has come out in favor of continuing to move forward, on the theory that the legislation could be amended in committee.
As Paradigm’s Alex Grieve wrote on X:
“There are significant edits still needed with this bill, and we do not agree with any enshrining of incumbents at the expense of crypto founders, developers, and challengers of the status quo. Protecting devs and DeFi is our highest priority in any legislation.
”But markups are where these types of edits are made.”
The bet that Grieve is making is that the legislation can change and whatever losses the industry has to take to get overall market structure language passed will be worth it. Andreessen-Horowitz Chris Dixon seems to be making a similar bet.
Coinbase, however, seems to think that not much will change in the bill’s language outside of what Senate Banking staff present to the committee.
Meanwhile the Blockchain Association is pushing a more nuanced message. The legislation will pass. This is fine. This is how it should work.
Where it stands
Is the cat actually both alive and dead? Can vibes actually change the outcome of a Senate vote? It’s a superposition. We don’t know. We never will.
Whether or not vibing the process is effective is a different question. All I’m telling you is what really is happening.
Seven days ago Polymarket had 80% odds that Clarity would pass this year. In the last week that’s fallen to 42%, as I write this.
That might look like the situation is changing but that’s not what it looks like to me. It looks to me like bettors simply have no idea and never have.
As a news consumer, you are reading reporting on this story because you care about the outcome, but you can’t take anything anyone says about it all that seriously, because we exist in a legislative superposition.
However, while no one can tell you what is going to happen, the game now being played by these policymakers and policy shapers can at least be made somewhat more legible.
If Clarity is to pass, it needs to lurch forward soon.
Every day the legislation gets delayed is another day closer to the 2026 Election, which will draw in a lot of Senators and everyone in the House. This will change the calculation about whether to vote to pass it or even to hold a vote.
Sen. Cynthia Lummis, one of the chief champions of crypto legislation, has announced her retirement, meaning she has less political power to help move the legislation forward.
The Senate Banking Committee has consistently failed to hit its deadlines for holding a markup, suggesting that Banking Chair, Sen. Tim Scott, doesn’t have control of this issue.
Senate Ag also delayed a markup, but it actually has one scheduled at the moment — unlike Banking.
The White House has been quiet publicly, suggesting that it no longer believes it has a winner.
And the crypto industry looks divided on priorities.
The most likely outcome is that Clarity fails, but regulators act and the industry steams ahead into the next presidency, growing so much that no one seriously considers a hostile policy agenda in the next administration.
But why isn’t anyone just saying that?
Because for players of the current game to say it would be to admit that Clarity isn’t essential, and if it isn’t essential then Congress can move on. But two different things are true right now: None of the stakeholders want Congress to move on but, also, no one knows what will happen if it proceeds.