The CLARITY Act is stuck, will the Coinbase vs. Wall Street "life-and-death game" trigger a cryptocurrency black swan event?

One of the world's largest cryptocurrency exchanges, Coinbase (COIN.US), based in the United States, has caused a major rift in the cryptocurrency field with its strong actions, leading to a delay in critical regulatory legislation. It is understood that the White House has even rare criticism of the cryptocurrency industry: "Do not take the political influence you have recently gained in Washington for granted." After Coinbase CEO Brian Armstrong helped delay comprehensive cryptocurrency legislation in the U.S. Senate by a week, White House cryptocurrency advisor Patrick Witt expressed his disagreement with Armstrong through the X social platform. Armstrong had warned that "no bill is better than one that is too bad." Witt wrote in a tweet, "You may not like every part of the CLARITY Act, but I can guarantee you'll hate the future Democratic version of the bill." Following the withdrawal of support from the latest version of the market structure legislation for the cryptocurrency market by Coinbase's CEO last week, the legislation may be delayed for a few more weeks. Some cryptocurrency industry executives are beginning to question whether industry leaders are exerting too much political influence. The divide between executives like Armstrong who are seeking the best cryptocurrency regulatory terms and those who are willing to compromise in order to gain much-needed clarity on cryptocurrency industry regulation while the political environment in the U.S. is still favorable is deepening. The upcoming midterm elections this year add to the debate, which could result in a more unfriendly U.S. Congress. The cryptocurrency industry is still actively recovering from the crackdown during the Biden administration. The CLARITY Act - the U.S. Cryptocurrency Market Clarity Act - has a significant impact on the global cryptocurrency market. The core goal of this bill is to establish a comprehensive and clear federal regulatory framework for digital assets, including defining the regulatory attribution of different types of crypto assets (such as digital commodities, securities), regulating exchanges and intermediaries, strengthening consumer protection, and clarifying the division of responsibilities between the SEC and CFTC. If successfully passed, it will greatly reduce the current compliance uncertainties facing the U.S. cryptocurrency market, thereby promoting institutional fund entry and more stable market growth. Due to the delays and controversies surrounding the CLARITY Act, it has indeed had an immediate impact on market sentiment. Last week, the bill was withdrawn for support by Coinbase's CEO from the Senate Banking Committee and was postponed in the markup stage, increasing uncertainty about the regulatory outlook. This has partially suppressed the short-term trends of cryptocurrencies such as Bitcoin, Ethereum, as well as the prices of cryptocurrency ETFs in the global stock market. There are even concerns among cryptocurrency participants that Coinbase's withdrawal of support for the bill has led to the postponement of the markup work in the Senate Banking Committee, and coupled with the fact that this cryptocurrency exchange is in a deep-water game with Wall Street banking giants, it may put Wall Street in a life-threatening situation. Using the financial market ecology as a core bargaining tool, they may demand significant concessions from the Senate, further clouding the prospects of cryptocurrency regulatory framework, ultimately leading to a potential "regulatory black swan" event that could trigger a cryptocurrency market crash. Coinbase CEO vs CLARITY Act The U.S.'s key cryptocurrency regulatory proposal (centered around the CLARITY Act) is currently in a major turmoil, primarily due to Coinbase CEO Brian Armstrong publicly withdrawing support for the bill, leading to the delay of the critical markup and review process in the Senate. The CLARITY Act had already passed in the House of Representatives, aiming to establish a unified federal regulatory framework for the digital asset market and clarify which assets are regulated by the Securities and Exchange Commission (SEC) and which are regulated by the Commodities Futures Trading Commission (CFTC) to end long-standing policy uncertainties and promote innovation and investor protection. However, before the Senate Banking Committee was scheduled to review the bill's draft in mid-January, Armstrong openly opposed provisions in the draft that would restrict operations such as stablecoin rewards, arguing that such provisions might stifle innovation and weaken market competitiveness, this stance sparked industry disagreements and led the committee to indefinitely postpone the review. In addition, the Senate Agriculture Committee, another crucial committee that must review and propose its own version of the market structure bill, is still advancing its text. It is understood that the Agriculture Committee may hold a hearing on the bill on January 27, after which it may enter the voting stage. For the CLARITY Act to become law, it must first pass through the Senate Banking Committee and Agriculture Committee separately, then undergo coordination and merging, return to the full Senate for a vote, and finally reach a consensus with the House of Representatives' version before being submitted to the president for signing, a legislative process that has become more complex and uncertain against the backdrop of an election year and escalating regulatory disputes. Arthur Wilmarth, Professor Emeritus of Law at George Washington University Law School, commented on Armstrong, saying, "His audacity and arrogance shocked me." "But if I were in his position, I would have to ask myself, do I really think that six months from now, or one year from now, I will be in a more favorable position than I am right now?" After the markup and review process was postponed, Bloomberg Intelligence senior analyst Nathan Dean reduced the likelihood of the bill passing in the first half of the year from 70% to 60%. Dean wrote, "If we don't see any positive progress from the committee in February, our chances of success may further decrease." Armstrong seemed to take a slightly more moderate tone on Tuesday, stating in a media interview that, while the draft contains "too many favorable terms for traditional finance," he still believes that the path to passing the legislation is feasible. Coinbase did not respond to multiple formal comment requests from the media. By helping to prevent the Senate Banking Committee from marking the bill, Armstrong demonstrated the political influence of the cryptocurrency industry under the strong support of President Trump, as the industry saw significant appreciation in digital assets wealth during Trump's leadership. The cryptocurrency industry is the largest donor in the 2023-2024 U.S. presidential election cycle, with industry participants donating over $1.33 billion to political candidates who are seen as supporting their agenda, according to statistics from OpenSecrets. Industry participants also made large donations to Trump's presidential campaign, inauguration, and White House events. The strategy of betting on Trump has been successful, with a series of executive orders supporting the healthy development of the cryptocurrency industry, and milestone legislation on stablecoins officially passed in July 2025. Wall Street Feels the Moment of Life and Death! Coinbase's tug-of-war with Wall Street causes panic in the cryptocurrency market However, a series of victories in the cryptocurrency industry have also raised collective alarms among large commercial banks on Wall Street, who believe that the introduction of stablecoin reward mechanisms could bring about a virtually life-threatening risk of deposit outflows, leading them to take action. Their top priority is to ensure that third parties (such as cryptocurrency exchanges) are prohibited from providing income or additional reward mechanisms for stablecoins. Stablecoins - a form of digital currency backed by traditional assets such as the U.S. dollar - have experienced rapid growth since the end of 2024, especially in the U.S. market. Some Wall Street analysts even predict that their market may expand to $2 trillion. Supporters see them as a blueprint for the global payment system of the 21st century, while other analysts warn that they could open new cracks in the financial system. Stablecoins are designed to maintain a stable value, usually pegged 1:1 with the U.S. dollar. In recent years, the use of stablecoins has surged, especially as cryptocurrency traders move funds between assets like Bitcoin and Ethereum, as well as in the growing penetration of cross-border financial services. Stablecoins are also a special type of cryptocurrency that maintains a stable value by anchoring core reserve assets such as the U.S. dollar, euro, or gold. As key legislation to establish a regulatory framework for stablecoins accelerates in the U.S. Congress, these price-stable cryptocurrencies are entering the mainstream asset arena of the global financial market. Stablecoins are essentially "digital dollars" that combine the U.S. dollar with blockchain technology, providing a new type of payment carrier that is both stable and efficient, and showing the commercial potential of "digitizing the dollar" in the capital markets. The limitations on stablecoin rewards specified in the initial version of the bill have become the most significant point of contention between Wall Street banking giants and the cryptocurrency industry, with both sides unwilling to compromise. The banks argue that allowing exchanges like Coinbase to offer rewards for holding stablecoins for customers could drain low-yield bank deposits, disrupting the global financial system, while cryptocurrency executives argue that they are only considering the interests of cryptocurrency consumers and hope to pass on the profits generated from supporting stablecoin reserves to customers. Jeremy Allaire, CEO of Circle Internet Group, stated at the World Economic Forum in Davos, "I think the banks' claims of deposit outflows are completely absurd." He pointed out that stablecoin rewards are similar to the rewards provided by credit card issuers, "Our goals are almost identical: to help increase customer stickiness and help customers earn equivalent rewards." He added that similar warnings had been made when money market funds appeared, but the concerns proved to be entirely unfounded. It is understood that some exclusive customers of Coinbase can earn about 3.5% rewards on Circle stablecoin USDC on their cryptocurrency trading platform. As shown in the above image, in terms of stablecoin market share, Tether's stablecoin market share surpasses that of Circle. Armstrong tries to portray this as a great struggle between "giants and David," where he and other cryptocurrency companies bravely stand up for cryptocurrency consumers. He said at Davos, "Bank lobbying groups and banking associations are working to ban their competitors. I have zero tolerance for this, I think it is contrary to the American spirit and harmful to consumer interests." Other parts of the market structure bill are also seen as detrimental to the cryptocurrency industry, including comprehensive monitoring of decentralized financial platforms, restrictions on tokenized shares, and the possibility of increasing the regulatory powers of the Securities and Exchange Commission (SEC) in certain areas - which also reminds Armstrong of the SEC during the Biden administration under the leadership of former Chairman Gary Gensler, which was seen as the "devil" of the cryptocurrency industry. Long-Term Battle For some executives, it is very worthwhile to take on political risks to secure favorable terms embedded in the American Financial Group, Inc. system. Now is the time to ensure that a sufficiently favorable bill is passed, making it difficult for any future Democratic-led government to reverse the legislative achievements of the cryptocurrency industry. The potential legislation rules that deeply embed the interests of cryptocurrency into the American Financial Group, Inc. system with favorable and rewarding mechanisms may continue long-term under the Trump administration, making it very worthwhile to take political risks. "The cryptocurrency industry is waging a 'long-term battle,' realizing that the legislation being discussed now may tighten their activities under a less friendly government in the future, so they hope to embed their interests deeply into the American Financial Group, Inc. system through the current legislation, thus gaining a more stable and difficult-to-overturn regulatory advantage in the long run." Eswar Prasad, Senior Professor of Trade Policy at Cornell University, has been following this industry. Not all cryptocurrency companies share the same views. Cryptocurrency leaders like Kraken and Galaxy Digital Inc., founded by Mike Novogratz, are more inclined towards passing the digital market structure bill as soon as possible, and are hopeful that the markup work will continue smoothly, according to sources. Arjun Sethi, CEO of Kraken, wrote on X platform, "Leaving now does not mean maintaining the status quo in practice. But it will lock in uncertainty, allowing U.S. companies to operate in ambiguous conditions, while other countries have already moved forward." Groups supporting the decentralized finance (DeFi) industry are also ready to support the Senate in its markup work and are disappointed by the delay. "We were prepared for the markup work," said Amanda Tuminelli, Executive Director and Chief Legal Officer of the DeFi Education Fund. "We have been closely collaborating with other industry stakeholders, influential figures, and the Senate Banking Committee, which has made great efforts to bring this bill to an optimistic place." These are common sentiments among business leaders in the cryptocurrency industry. The market reacts to every slight change in regulation, showing the sensitivity and potential impact of the regulatory environment on cryptocurrency prices.