The Clock in the U.S. and the Exam Paper in Hong Kong: What Does the Stalemate in Market Structure Legislation Mean for the Industry?

Placing the progress of the systems in the U.S. and Hong Kong side by side to answer one question—how much is regulatory certainty really worth?

Written by: EX.IO

What is the CLARITY Act? The Last Window for a Bill

The CLARITY Act (Digital Asset Market Clarity Act) is foundational legislation in the U.S. aimed at establishing the market structure for digital assets. Its core goal is to answer a question that has plagued the market for a decade: is a token a security or a commodity, and should it be regulated by the SEC (Securities and Exchange Commission) or the CFTC (Commodity Futures Trading Commission), and what identity should trading platforms register under?

The first half of the bill's journey was relatively smooth. In July 2025, the House passed it with a bipartisan majority of 294:134; in May 2026, the Senate Banking Committee approved it with a vote of 15:9; in July, a consolidated text incorporating the results of the two major committees was released. However, on September 15, the Senate's vote on the motion to invoke cloture failed 49:50—11 votes short of the 60 needed to initiate formal debate, with no defections from the Democrats and three Republicans opposing it.

Strictly speaking, senators have never voted on the content of the bill itself. With the midterm elections concluded and Congress entering a “lame duck” session, the fate of this bill has been compressed into a very narrow channel: either miraculously gather 60 votes before the recess on January 3, or reintroduce the bill in the 120th Congress, go through committees again, and renegotiate—starting from scratch.

Why the CLARITY Act Failed: Three Major Stalemates

The failure of the CLARITY Act does not stem from a principled debate over whether to regulate, but rather from three specific clauses.

First, the ethical clause. How to restrict federal officials and their families from profiting from crypto businesses has remained a point of contention between the two parties. The White House agreed in July to include a revised clause, but Democrats believe it leaves room for evasion through intermediaries and family-affiliated companies, and its expiration in January 2029 is insufficient.

Second, the responsibility of DeFi developers (Section 604). The clause was intended to protect non-custodial software developers from being classified as money transmitters, but critics argue it leaves a regulatory gap for DeFi.

Third, the yield restrictions on stablecoins (Section 404). This clause limits the yield provided by payment stablecoins, directly igniting a confrontation between the banking and crypto industries—banks are concerned about deposit outflows, while platforms view stablecoin rewards as a core source of income. Just this clause alone led major industry players to withdraw their support for the Senate draft twice in early 2026.

Each of the three stalemates has its own opponents, and resolving one does not mean the other two will loosen. This is why “re-voting” is easy, while “restarting negotiations” is difficult.

After the Midterm Elections: The U.S. Crypto Regulatory Clock Slows Down

The midterm elections on November 3 reshaped the legislative landscape. After the Democrats secured both the House and Senate, they are pushing for significant revisions to the CLARITY Act: expanding SEC oversight, narrowing CFTC jurisdiction, and tightening ethical constraints on officials. The Republicans have labeled it a “messaging bill.”

The personnel landscape is also crucial. The market widely expects Elizabeth Warren, who holds a tough stance on the crypto industry, to chair the Senate Banking Committee; meanwhile, Bryan Steil, a key proponent of the bill in the House and chairman of the Digital Assets Subcommittee, lost in the midterm elections. Analysts at TD Cowen predict that there is virtually no path for the bill to pass in the next two years.

Of course, there are also positive signals: nearly half of the candidates endorsed by industry organizations are Democrats, indicating that bipartisan consensus has not disappeared. The question is whether this consensus can translate into 60 votes in a divided Congress.

Institutional Backup: SEC and CFTC Can Bridge, But Cannot Build Pillars

With legislative stagnation, the focus of U.S. crypto regulation has shifted to administrative agencies. The SEC proposed a “Crypto Asset Regulation” in August 2026, setting a two-tier financing exemption of up to $75 million; in October, it proposed new rules for crypto asset custody. The CFTC has publicly sought opinions on retail crypto trading rules and clarified the capital treatment standards for crypto assets as collateral.

However, institutional rules have three structural shortcomings:

• Reversible: Administrative rules can be reversed with changes in government, and courts have previously overturned several SEC rules on grounds of overreach;
• Incomplete Coverage: The CFTC lacks the authority to establish a licensing system for spot exchanges, and customer asset bankruptcy priority can only be achieved through congressional legislation;
• Certainty Discount: For institutions requiring long-term investments, the difference between “possible rules” and “codified provisions” directly impacts investment decisions.

Hong Kong's Answer: A Four-Tiered Virtual Asset Regulatory Framework in Effect

The U.S. follows a path of “one bill to determine everything,” betting on a one-time political breakthrough. Hong Kong has chosen a different route: gradual legislation, taking small steps, with each step enshrined in law.

The common feature of this system is to establish rules first and then take action: practitioners do not need to gamble on whether a certain clause can pass; they only need to build their capabilities in accordance with the rules that are already in effect.

Risk Points: Regulatory Certainty Comes at a Cost

Objectively speaking, certainty does not come without costs. First, capital requirements, custody standards, insurance, and audit arrangements constitute real compliance thresholds, which are designed for long-term operators. Second, transitional arrangements for cross-border rules, DeFi handling, and new licensing systems are still being refined, and there exists a time lag between “certain direction” and “complete details.” Third, certainty does not equate to market scale—the institutional advantages ultimately depend on liquidity depth and international capital participation, which cannot be accomplished unilaterally by regulation.

EX.IO Research Perspective

This transatlantic (and transpacific) comparison reveals a true insight: regulatory certainty itself is a scarce infrastructure, and it can be designed through institutional frameworks.

The experience of the U.S. shows that even in a market with a deep legislative tradition and strong industry lobbying, a market structure bill can be dragged into a countdown by political issues unrelated to crypto. Institutional “rule backup” can address immediate needs but cannot provide the level of certainty that legislation can—yet the latter is precisely the prerequisite for institutional capital to make long-term allocations.

The value of Hong Kong lies not in being more lenient or stricter in regulation, but in being predictable: rules are layered down in the form of ordinances, circulars, and consultation summaries, with a public timetable and clear boundaries. For the industry, this means compliance investments will not be wiped out overnight due to political winds; for platforms choosing a licensed path, certainty itself is a source of long-term compounding returns—when the system becomes a scarcity, those who build according to the rules will be the beneficiaries.

In the next two years, the industry is likely to face a “dual-speed world”: the U.S. calibrating between legislative restarts and institutional rules, while Hong Kong continues to expand its crypto network along the already laid tracks. The real question is not which market is “better,” but whether your business structure can maintain resilience between the two rhythms.

Signals to Watch

• January 3, 2027: The 119th Congress recesses. Whether there will be a second vote on the motion to invoke cloture is the last theoretical window for the CLARITY Act.
• The 120th Congress: Whether the market structure bill will be reintroduced with new text, the selection of the Senate Banking Committee chair, and the bipartisan ratio.
• SEC “Crypto Asset Regulation”: The degree of leniency in the public consultation results and final rules will determine how far institutional backup can go.
• Hong Kong Legislative Council: The progress of the legislative draft for licensing systems in trading, custody, consulting, and asset management.
• Hong Kong Stablecoin Ecosystem: The pace of the second batch of issuer licenses and the actual adoption of licensed stablecoins in retail and institutional scenarios.

Frequently Asked Questions (FAQ)

What is the CLARITY Act?

The CLARITY Act (H.R. 3633) is the U.S. digital asset market structure bill aimed at delineating the regulatory boundaries between the SEC and CFTC regarding crypto assets and establishing a registration framework for trading platforms. The bill was passed by the House in July 2025 and failed in the Senate's cloture vote in September 2026 with a vote of 49:50.

What does the failure of the CLARITY Act mean for the crypto industry?

In the short term, U.S. digital asset regulation will rely on the administrative rules of the SEC and CFTC, but such rules can be reversed and are incomplete, and uncertainty at the market structure level is expected to continue into the new Congress.

What does Hong Kong's virtual asset regulatory framework include?

Hong Kong's framework consists of four tiers: mandatory licensing for VATP trading platforms (effective June 2023), the Stablecoin Ordinance and issuer licenses (effective August 2025, with the first licenses issued in April 2026), licensing for the full chain of trading/custody/consulting/asset management (under revision), and secondary trading of tokenized products and market optimization measures under the ASPIRe roadmap.

Why is regulatory certainty important for the crypto industry?

The prerequisite for institutional capital to make long-term allocations is rule stability. Legislative-level certainty ensures that compliance investments will not be wiped out due to changes in political winds, thus making “predictability” itself a competitive advantage for jurisdictions.

References

[1] U.S. Senate, Roll Call Vote 234: Cloture on the Motion to Proceed to H.R. 3633 (2026-09-15). https://www.senate.gov/legislative/LIS/roll_call_votes/vote1192/vote_119_2_00234.htm [2] Congress.gov, H.R.3633 --- Digital Asset Market Clarity Act of 2025, 119th Congress. https://www.congress.gov/bill/119th-congress/house-bill/3633 [3] Troutman, “In the Wake of CLARITY Act's Failure, Agencies Move Forward Without Congressional Action or Certainty” (2026-09-25). https://www.troutman.com/insights/in-the-wake-of-clarity-acts-failure-agencies-move-forward-without-congressional-action-or-certainty/ [4] BIT Knowledge Hub, “Will the CLARITY Act Pass After the 2026 Midterms?” (2026-11-10). https://www.bit.com/knowledge-hub/clarity-act-midterms [5] Hong Kong Monetary Authority: Regulatory Regime for Stablecoin Issuers (first licences granted 2026-04-10). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/stablecoin-issuers/ [6] SFC Circular: Provision of Relevant Stablecoin services by VATPs and licensed corporations (2026-05-27). https://apps.sfc.hk/edistributionWeb/api/circular/list-content/circular/doc?refNo=26EC26&lang=EN [7] FSTB & SFC: Consultation Conclusions on licensing regimes for VA dealing and custodian service providers (2025-12-24). https://www.info.gov.hk/gia/general/202512/24/P2025122400265.htm [8] Stephenson Harwood, “Virtual assets in Hong Kong: upcoming regimes for VA advisors and managers, and trading of relevant stablecoins” (2026). https://www.stephensonharwood.com/insights/virtual-assets-in-hong-kong-upcoming-regimes-for-va-advisors-and-managers-and-trading-of-relevant-stablecoins/ [9] SFC Circular: Secondary trading of SFC-authorised tokenised investment products (2026-04-20). https://apps.sfc.hk/edistributionWeb/api/circular/openFile?lang=EN&refNo=26EC23