Bitwise CIO Warns: Crypto Faces a Three-Year Test If Clarity Act Fails

The Clarity Act could spark an expectations-driven rally, while a failure could leave markets in a wait-and-see mode.

The Clarity Act was passed by the U.S. House of Representatives in July 2025 with bipartisan support. As of January 2026, the legislation continues to be reviewed by the Senate. The bill is being considered by the Senate Banking, Housing and Urban Affairs Committee, while the Senate Agriculture Committee is providing input on CFTC-related provisions.

Senate committees have held hearings and released draft proposals as part of the broader market structure legislation. However, the increases have been delayed as lawmakers debate issues including investor protection. The differences between the Senate drafts and the House-passed bill are still being worked out.

Bitwise Chief Investment Officer Matt Hougan said that if the Clarity Act is not passed, the US crypto market would enter what he described as a critical “show me” period, during which the industry would have about three years to prove that crypto is indispensable to everyday Americans and to the traditional financial system.

Regulatory concerns

According to Hougan, if the bill is not passed, the current pro-crypto regulatory environment would not be enshrined in law, leaving it vulnerable to undoing by a future administration. He argued that without clear legislation, crypto’s future growth would depend less on policy expectations and more on demonstrable real-world adoption. Hougan said this would put pressure on the industry to demonstrate that use cases such as stablecoins, tokenized securities and blockchain-based financial infrastructure are being actively deployed at scale.

He compared this scenario to the early years of companies like Uber and Airbnb, which operated in regulatory gray areas but eventually became so widely used that lawmakers were forced to change regulations to reflect their reality. The Bitwise executive said crypto should follow a similar path if Clarity fails.

However, Hougan warned that the outcome would not be guaranteed. If crypto is still seen as operating on the fringes of the financial system after several years, a change in political leadership could lead to serious challenges. In that case, investors would wait for clear evidence of real-world adoption before awarding prizes. He said this contrasts with a scenario where the Clarity Act is passed in an industry-supporting form, which he expects will lead to a sharp market rally as investors assume the growth of stablecoins, tokenization and other crypto use cases is set.

Friction within the industry

As lawmakers continue to debate the final form of the Clarity Act, there have been reports of increasing public friction within the industry. Earlier this month, Citron Research accused Coinbase CEO Brian Armstrong of opposing the law to protect Coinbase’s stablecoin yield business from increased competition.

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The allegations emerged after Coinbase decided to withdraw support for the bill on January 14. The exchange had raised concerns about tokenized equity, DeFi privacy, stablecoin rewards, and the shift of regulatory authority to the SEC. Citron claimed Armstrong feared competition from companies like Securitize.