By Nish Chari, General Counsel at Alchemy

The Past 

Just a few years ago, the crypto industry had begrudgingly accepted that launching crypto products in the U.S. would inevitably result in receiving a Wells notice from the SEC, kicking off a long and costly investigation process. Indeed, this was precisely the unfortunate rite of passage that many of the industry’s largest and most established companies had endured, including Coinbase, Ripple, Robinhood, Uniswap Labs, and many others. These companies all found themselves facing investigations, enforcement actions, or years of litigation while awaiting commonsense guidance regarding how digital assets would be handled from a legal and regulatory standpoint, given that the existing rules applicable to traditional financial instruments often made for an odd fit. At a high level, most financial laws and regulations assume the existence of an intermediary such as a bank, exchange, or clearing house, and blockchain technology enables peer-to-peer exchange of value without an intermediary.   

Some may argue that, in the wake of the FTX collapse, it was entirely appropriate for regulators to take a harder look at an industry that had suffered a significant loss of public trust. However, a closer review of the facts reveals that the conduct at FTX consisted of garden variety fraud and misuse of customer funds, albeit on a massive scale, that merely happened to occur at an offshore cryptocurrency exchange. There was nothing unique to crypto about what occurred.  

The bigger problem resulting from the aftermath was that, for many companies trying to build responsibly in the U.S., there was no clear guidance and instead only a patchwork of lawsuits and enforcement actions with inconsistent results in various courts. As a result, many questions remained unanswered around what types of products and services might be permitted given that existing securities and commodities laws did not map cleanly onto most digital assets.  Contrary to the perception that the industry was aiming to avoid being subject to laws or regulations, most entrepreneurs in the space were actually seeking clear rules of the road to follow. 

That uncertainty had real consequences. Numerous companies failed to gain traction due to the regulatory overhang and had to shutter their operations. Many companies that didn’t halt operations entirely had to delay launching certain products or services given that the enforcement and reputational risk dramatically outweighed potential revenues. Other companies had no choice but to establish or re-establish operations outside of the U.S. altogether, and to restrict users in the U.S. from accessing their services. Global and multinational companies with much larger business lines concluded it was not worth investing time, money, or resources in blockchain-powered solutions, not because they doubted the value of the technology, but because they couldn’t risk impacts on their broader business given the regulatory uncertainty. 

The Present 

Fortunately, the tone in Washington has shifted. That didn’t just happen overnight, but through years of engagement between blockchain and crypto companies, trade groups such as the Blockchain Association, and lawmakers and politicians across the political spectrum. Listening to the way government officials now describe blockchain technology, it is clear that the valiant efforts of folks across the industry have meaningfully bridged the education gap regarding the valuable and productive uses of the technology. Now, the conversation has shifted from understanding the technology to aligning on where existing frameworks may be applied and where they fall short. While there is more work to be done, this engagement has resulted in greater alignment on how digital assets and related markets should be governed in order to promote consumer protection without hampering innovation. 

It is worth pausing on the profound philosophical shift reflected in the current discourse. Getting policymakers to recognize that blockchain technology itself isn’t fundamentally the problem was a landmark development in the industry’s ongoing quest for legitimacy and mainstream adoption. Obviously, fraud, market manipulation, misuse of funds, financing terrorism or organized crime, and transactions with sanctioned parties all deserve aggressive enforcement regardless of the technology involved. Indeed, many lawyers and founders in the industry come from a background in law enforcement, government, public service, and regulatory agencies and continue to hold the public interest at heart. However, associating every blockchain or crypto product with its worst misuses would mean overlooking the legitimate technology that has continued to develop in spite of the negative headlines that continue to drive the most clicks. 

Despite the industry’s best efforts to get the CLARITY Act brought to the Senate floor for a procedural vote before the Senate recess, that vote was ultimately delayed until after the Senate returns. In the meantime, two major developments occurred. First, the SEC released the “Regulation Crypto Assets”, which would provide safe harbors on certain investment contracts involving crypto assets. Second, CFTC Chair Michael Selig announced that the CFTC would issue crypto rules to codify a CFTC market structure using existing agency authorities if Congress fails to pass the CLARITY Act. 

The positive signal from these developments is that U.S. regulators will continue to advance the valuable cause of bringing clearer rules and guidelines to builders and entrepreneurs offering services to U.S. consumers. Nonetheless, what many in the industry know from lived experience is that agency leadership and enforcement priorities may change drastically every four years along with any change in the administration. Congressional action is needed in order to provide truly durable guidance for teams building for the long term. 

The Future 

Upon returning to session in September, Congress should act swiftly to enshrine what we already know to be true: blockchain, crypto, and digital assets are here to stay, and American consumers are only hurt in the long term by having their access to related products and services be limited to offshore, unregulated providers. The progress made thus far on the CLARITY Act is the strongest indication yet that consensus can be reached across the political spectrum. Establishing a clear market structure for digital assets would come not a moment too soon, as financial institutions actively explore stablecoins for global payments, asset managers increasingly invest in tokenizing assets, and blockchain settlement emerges as a focus of conversations about the future of capital markets.  

When the CLARITY Act is finally signed into law, crypto will be able to operate as any other mature financial market does. In addition to encouraging innovation, regulatory certainty would give businesses the confidence to invest, hire, launch products, and build for the long term. Major institutions are also far more likely to commit capital when they are able to understand the rules before doing so. The importance of getting this right, and doing so quickly, extends beyond the crypto industry. Clearer rules will strengthen consumer protections while giving regulators stronger footing to pursue bad actors engaged in fraud and misconduct across the spectrum of crypto and traditional financial assets.  

But passing the CLARITY Act isn’t the end of the story. We also need clear agency boundaries, pragmatic rules, and consistent enforcement once the law is passed. Regulators across the SEC, CFTC, DOJ, and FinCEN will need to coordinate efforts so companies aren’t left navigating conflicting interpretations, while giving existing businesses a practical timeline to come into compliance. The CLARITY Act would be a significant milestone, but will need continued industry participation in engaging with follow-on rulemaking. These are all necessary steps for the United States to continue being the shining beacon of innovation that it has been throughout its history. 

For years, Washington treated digital assets as a problem to contain. This is its opportunity to approach the blockchain as a technology to govern responsibly. That shift will ultimately prove to be far more consequential than any individual piece of legislation.