The failure of the CLARITY Act to advance in the U.S. Senate has complicated the path toward a comprehensive regulatory framework for digital assets, raising questions about how quickly large financial institutions will deepen their participation in the market.

The legislation failed to clear a procedural vote on September 15, with the Senate voting 49-50 against invoking cloture on the motion to proceed. The measure required three-fifths support to advance.

“The continued delay of the CLARITY Act prolongs the uncertainty that institutional investment firms have been looking to resolve,” said Phillip Silitschanu, SVP at Arcesium. “Still, it shouldn’t be taken as a reason to pause digital asset preparation,” he told Traders Magazine.

For institutional firms, Silitschanu said the issue is not necessarily whether a particular regulatory framework is favorable, but whether it is clear and durable enough to support decisions around governance, compliance and technology.

“For institutional investment firms, it’s not necessarily about whether the rule is favorable (CLARITY or otherwise); it is about having a sufficiently clear and durable rulebook to determine how they should build their governance, compliance, and operating models around digital assets,” he said.

“This matters for institutions making technology and infrastructure decisions that may need to last for years, not just a single regulatory cycle,” he added.

Ophelia Snyder, co-founder of 21Shares, identified the lack of a durable legislative framework as one of the consequences of the vote. “Clarity is dead. It didn’t even make it through the procedural vote required to reach a floor debate, despite additional ethics provisions intended to address some of the objections to the bill,” she said. “That is a meaningful setback for crypto regulation in the U.S. But it is not a return to the regulatory environment of several years ago.”

Snyder expects regulatory progress to continue through individual agencies and executive action, but said the absence of comprehensive legislation could affect the pace at which traditional financial institutions expand their digital asset businesses. “The immediate consequence is likely to be a slowdown in institutional adoption,” she said.

“That doesn’t mean JPMorgan, Bank of America, BlackRock and their peers suddenly abandon crypto. The economic and technological incentives that brought them into the market haven’t disappeared,” she added.

Instead, Snyder pointed to the different threshold large regulated institutions face when committing capital and building new infrastructure. “Before committing significant capital, integrating new infrastructure or launching major new businesses, these firms need confidence that the rules governing those investments will survive changes in administrations and regulators,” she said.

“Clarity would have provided substantially more of that certainty. Without it, I expect institutional adoption to continue, but at a slower pace,” she added.

The SEC is meanwhile continuing its own work on digital assets. Silitschanu said that could give institutions more guidance on how digital assets fit within their investment, compliance and operating models, although he drew a distinction between agency rules and legislation passed by Congress.

“The SEC’s Regulation Crypto Assets rules may not provide the same long-term durability as legislation. This means that firms may still have to operate against a regulatory framework that could evolve once the CLARITY Act passes next year,” he said.

Ryan Kirkley, CEO and co-founder of Global Settlement Network, said regulatory uncertainty can affect how institutions deploy capital. “I think the reaction tells you that regulatory certainty has become a market variable in its own right,” he said.

“Capital has been making assumptions about the direction of US policy for months, particularly around what clearer rules could mean for institutional participation, custody and market structure, so when that timeline gets pushed out, those assumptions have to be repriced.”

For institutions, he said, the consequences go beyond short-term movements in digital asset prices. “The bigger issue is that uncertainty has a cost because it affects how much capital you deploy, which counterparties you use and how quickly you are willing to build around a market,” Kirkley said.

Kirkley said higher interest rates are adding another consideration for institutions deciding where to deploy capital. “Higher rates raise the hurdle rate for everything because capital can earn a respectable return without taking much risk, so investors become much more selective about where they put money and how long they are prepared to lock it up. Crypto feels that directly, but the same calculation is happening across equities, private markets and institutional portfolios.”

From Regulatory Uncertainty to Infrastructure

Beyond regulatory uncertainty, Silitschanu highlighted the infrastructure challenges institutions face as they expand into digital assets, particularly the differences between systems built around traditional market hours and assets that trade around the clock. “Traditional financial infrastructure was built around defined market hours and batch processing. This meant that if something broke or failed to reconcile, firms historically had an overnight window to resolve it before markets opened. Now, with digital assets, operational models turn to 24/7, without the luxury of a pause button,” he said.

Silitschanu said institutions will need middle- and back-office systems capable of supporting both traditional and digital assets: “As traditional and digital assets increasingly converge, firms will need the right middle- and back-office processes and infrastructure to support both.”

Kirkley highlighted settlement as another part of the infrastructure challenge: “When markets move quickly, the value of liquidity depends on whether you can actually move and settle it when you need to. Institutions can have capital available and still run into fragmented venues, different settlement windows, counterparty constraints and assets sitting across separate systems, which creates friction exactly when speed matters most.”

Snyder similarly sees operational questions becoming increasingly important as institutional participation develops. “Increasingly, the hard problems are operational,” she said. “How do you integrate blockchains into existing financial infrastructure? How do you move significant amounts of assets on-chain safely? How do you connect legacy systems to new settlement rails? How do you manage custody, liquidity and risk at institutional scale?”

Snyder said the legislative setback could create an opportunity for crypto-native firms as larger regulated institutions move more cautiously. “The failure of Clarity may give crypto-native firms more time to build stronger products, infrastructure and distribution before the largest financial institutions can compete at full speed,” she said.

Snyder said institutional adoption is likely to continue at a slower pace, while operational issues remain among the challenges facing the industry. “Those problems existed before Clarity failed, and they exist today. The difference is that the industry may now have to solve them while operating with more regulatory uncertainty than it expected.”