Crypto industry in crisis: Clarity law failed

A law that is important for the industry has failed, and prices are reacting significantly. Now the market has to reorganize itself under difficult conditions, warns Astrid Dörner.

The crypto industry has to cope with a serious setback. In Washington, even after several attempts, there is no majority for the Clarity Act.

The rules should, among other things, clarify which cryptocurrencies are considered securities and which are considered raw materials. For investors, this was seen as a crucial prerequisite for legal certainty and further growth of the industry in the USA, as Jennifer Lassiter from Standard Chartered explained in the “Handelsblatt Invest” podcast.

The reaction on the markets was correspondingly violent. The shares of the crypto exchange Coinbase fell by ten percent on Tuesday, and the stablecoin provider Circle lost eleven percent. Bitcoin temporarily slipped below $75,000 and XRP lost a good ten percent.

The Trump bonus for the crypto world has evaporated. What was once a booster has become a brake. The consequences extend far beyond the price drop of a single trading day.

Donald Trump had already presented himself as crypto president during the election campaign. Since his election, he has already benefited from several lucrative deals. Several family members are now crypto entrepreneurs themselves. Shortly before the congressional elections at the beginning of November, many Democrats do not want to use their votes to support the very industry that brings the president billions in profits.

Trump has already promoted crypto-friendly regulators to the top of important authorities, who, according to industry experts, will draw up rules that should have been partially enshrined in the law - especially at the US Securities and Exchange Commission (SEC).

But these new rules could be overturned by a new government much more quickly than a law. This could slow down further investments and put further pressure on prices.

With the failure of the Clarity Act, crypto stocks are missing what is probably the most important price driver. Bitcoin is currently trading almost 40 percent below its record high and is therefore deep in the bear market. Because the euphoria surrounding artificial intelligence (AI) has drawn a lot of money from the crypto markets. A new law would have been a strong signal.

Worse still: The fact that the Democrats have positioned themselves so clearly against the law poses a new risk for the industry. If they win the majority in the US House of Representatives in November, they could initiate investigations into crypto companies, which would further weigh on prices.

The chamber has particularly far-reaching powers. It can summon companies to appear before committees, demand the release of documents and examine processes in detail. This would significantly increase the political pressure in Washington for the industry.

According to Matt Hougan, head of investment at asset manager Bitwise, the passage of the law could have attracted large institutional investors and triggered a rally. Now the market has to reorganize itself. New price drivers are urgently needed.