The SEC Steps In After Congress Stalls
Congress could not advance the Clarity Act this week despite good faith talks and hard work by many people. In response, the SEC used its own legal authority to keep progress going. SEC Chair Paul Atkins announced a new rule change called the "innovation exemption." It clears a path for on-chain trading of certain tokenized stocks, meaning crypto platforms can now officially offer tokenized versions of stocks like Meta (META), Apple (AAPL), and Nvidia (NVDA) under easier rules while the SEC builds permanent regulation.
For the past year and a half, the SEC has worked to give digital assets more certainty. It ended "regulation by enforcement." With the CFTC, it issued an interpretive release that separates securities from commodities, and it proposed rules for direct crypto assets that match Title One of the Clarity Act. From day one, the Trump administration made American financial leadership and innovation the priority.
What the Innovation Exemption Does
On-chain trading of tokenized securities could bring large benefits to investors and markets. Under the current framework, trading venues that want to use this technology face unclear rules about their legal status and how to follow federal securities law. That uncertainty pushed responsible innovation out of the United States.
Tokenization could modernize how assets are issued, traded, transferred, settled, and how ownership is recorded. It could lower costs, improve transparency, and expand liquidity.
Today's SEC order grants two forms of temporary, conditional relief:
- It exempts certain trading venues from the definition of "exchange" under Section 3A1 of the Exchange Act.
- It exempts certain liquidity providers from the definition of "dealer" under Section 3A5 of the Exchange Act.
The exemption came after public input through roundtables and other channels. It is limited in scope and expires after 5 years. This gives the market a set window to develop while the SEC works on future rules. Today's technology is not being locked in as tomorrow's standard.
The Conditions Attached
Eligibility depends on several factors:
- The venue must be a U.S. person.
- Participants must be cleared to trade tokenized NMS stock.
- No synthetic instruments are allowed.
- Issuers of the underlying stock must be notified and given the chance to opt out.
- Tokenized stock must give holders the same rights and privileges as stock bought through a normal brokerage account today.
This is an interim measure. It must be followed by durable rulemaking so investors stay protected and on-chain markets stay a workable path as capital markets evolve.
More Agencies Expected to Follow
The chief policy officer at Coinbase (COIN) expects announcement after announcement over the next two years. What the Clarity Act was meant to do, individual agencies are now doing themselves within their own authority. The Trump administration put out a crypto blueprint last year that laid out the road map. Now the SEC, CFTC, and other agencies will use existing statutory authority to provide the clarity the industry needs.
The U.S. is the last of the G20 economies to build a national framework for crypto markets, which is a national security risk. Over the next two years, market practice, regulatory expectations, and fair notice to the industry will be set. The resulting structure should be more resilient than it would have been otherwise.
The Clarity Act's Status
The Clarity Act is likely dead, with maybe a 1% chance it still passes this year. Seven Senate Democrats have said they are committed to getting the bill passed - seven more than voted for it in the recent cloture vote. That is a small sign of hope.
In that vote, 44 Democrats voted no. Senator Dick Durbin, 81, explained his concern: he thinks crypto is a bubble that will burst and hurt many people relying on it to build wealth. He said crypto has been abused and misused, including by the president, who earned $1.4 billion from it in the first year, and that it deserves a serious look. My view is that he does not seem well informed.
Elizabeth Warren has now volunteered to write the next version of the Clarity Act with a few other Democrats, saying crypto needs legislation and that she put together a crypto bill. I find this two-faced.
Bitcoin Holding Despite Headwinds
Michael Saylor sold, BitMEX failed, the Clarity Act died, and the Fed hiked interest rates. Even so, Bitcoin is still holding at 75K. The open question is whether Bitcoin ends the year above or below 75K.
I stay invested regardless of interest rates or whether the Clarity Act passes. Lower interest rates and a passed Clarity Act both would have been better, but crypto is a young asset class exploding with growth. I bet on the technology, the network effect, and the Lindy effect.
Price Predictions
JP Morgan (JPM) says Bitcoin could rise sharply against gold if investors unwind their Bitcoin ETF hedges. BlackRock's IBIT ETF currently has near record-high short interest and heavy put options, while gold shorts are below average. Any short covering or hedge closing could set off a wave of forced Bitcoin buying and push the price higher. Price will stay flat only for so long.
Coinbase CEO Brian Armstrong is sticking with his call for a $300,000 to $400,000 Bitcoin within about 4 years, by 2030. He points to the cycles Bitcoin has gone through since roughly 2009. Run-ups often come around the Bitcoin halving events, when the amount of Bitcoin being mined is cut in half, followed by drawdowns that usually last about a year. The market recently went through one of those. If the pattern holds, the bottom of this cycle was likely around 60K, and price is up a little from there now.
Armstrong also notes that other parts of crypto are growing fast no matter what Bitcoin's price does - stablecoins, perpetual futures, prediction markets, and agentic finance are all growing well.
