America's Clock, Hong Kong's Answer: What the Stalled Market Structure Bill Means for the Industry

Only weeks remain before the 119th U.S. Congress adjourns on January 3. If the CLARITY Act (H.R. 3633), America's crypto market structure bill, fails to clear the Senate by then, it must restart the entire legislative process in a new Congress. While the world's largest digital asset market enters its third year of arguing over "who regulates what," Hong Kong has already put its VATP licensing regime, Stablecoins Ordinance and tokenisation framework into operation, one layer at a time. This report passes no political judgment; it does one thing: place the two jurisdictions' institutional progress side by side, and ask what regulatory certainty is actually worth.

What Is the CLARITY Act? A Bill's Last Window

The CLARITY Act (Digital Asset Market Clarity Act) is foundational U.S. legislation designed to establish a market structure for digital assets. Its core objective is to answer a question that has vexed the market for a decade: is a token a security or a commodity; does it fall under the SEC or the CFTC; and under what status may trading platforms register?

The bill's early progress was remarkably smooth. In July 2025, the House passed it 294-134 with bipartisan support; in May 2026, the Senate Banking Committee advanced it 15-9; in July, a merged text combining both committees' work was released. But on September 15, the Senate's cloture vote failed 49-50 — eleven votes short of the 60 needed to open formal debate, with no Democrat crossing over and three Republicans voting against.

Strictly speaking, senators never voted on the substance of the bill. And with the midterms behind it and Congress in a lame-duck session, the bill's fate is compressed into a very narrow corridor: either muster a miraculous 60 votes before adjournment on January 3, or start over in the 120th Congress — reintroduction, committee markups, renegotiation, everything from zero.

Why the CLARITY Act Failed: Three Deadlocks

The bill's failure did not stem from any principled dispute over "whether to regulate," but from three specific provisions.

First, the ethics provision. How to constrain federal officials and their families from profiting from crypto businesses remained an unbridgeable partisan divide. The White House agreed in July to a revised clause, but Democrats argued it left room for circumvention through intermediaries and family-affiliated entities, and that its January 2029 expiry made it too weak.

Second, DeFi developer liability (Section 604). The clause was intended to protect non-custodial software developers from being treated as money transmitters; critics argued it would leave a regulatory gap in DeFi.

Third, stablecoin yield restrictions (Section 404). The provision restricts payment stablecoins from offering yield, igniting a head-on conflict between the banking and crypto industries — banks fear deposit flight, while platforms regard stablecoin rewards as a core revenue line. This clause alone twice prompted a leading industry company to withdraw its support for the Senate draft in early 2026.

Each deadlock has its own opponents; resolving one does not loosen the other two. That is why restarting negotiations is far harder than simply holding another vote.

After the Midterms: America's Crypto Regulatory Clock Slows Further

The November 3 midterms redrew the legislative map. Having won both chambers, Democrats are pushing for a major rewrite of the CLARITY Act: expanding SEC oversight, narrowing CFTC jurisdiction, and tightening ethics constraints on officials. Republicans have dismissed the rewrite as a "messaging bill."

Personnel matters just as much. Markets widely expect Elizabeth Warren, a hardliner on crypto, to chair the Senate Banking Committee; meanwhile Bryan Steil, the bill's key House proponent and chair of the digital assets subcommittee, lost his seat. TD Cowen analysts see essentially no path for the bill over the next two years.

There are positive signals too: nearly half of the candidates endorsed by industry groups were Democrats, suggesting cross-party consensus has not vanished. The question is whether consensus can be converted into 60 votes in a divided Congress.

Agencies Filling the Gap: Bridges, but No Bridge Piers

With legislation stalled, the center of gravity has shifted to the agencies. In August 2026 the SEC proposed a "Regulation Crypto Assets," with a two-tier offering exemption capped at $75 million, and in October proposed new crypto custody rules. The CFTC sought public comment on retail crypto trading rules and clarified capital treatment for crypto assets posted as margin.

But agency rules carry three structural weaknesses:

•      Reversible: administrative rules swing with each administration, and courts have previously vacated multiple SEC rules as exceeding statutory authority;

•      Incomplete: the CFTC lacks authority to create a registration and licensing regime for spot exchanges, and customer-asset priority in bankruptcy can only be enacted by Congress;

•      A certainty discount: for institutions making multi-year commitments, the difference between "possible rules" and "statutory text" shows up directly in investment decisions.

Hong Kong's Answer: A Four-Layer Virtual Asset Framework Already in Force

America took the "one bill settles everything" path, betting on a single political breakthrough. Hong Kong chose another route: incremental legislation, small but steady steps, each one written into law.

The common feature of this framework is rules first, then build: market participants need not bet on whether a clause will survive a floor vote — they simply build capabilities against rules already in force.

Risk Points: Certainty Has Its Costs

To be objective, certainty is not free. First, capital requirements, custody standards, insurance and audit arrangements form a real compliance threshold — this is a market designed for long-term operators. Second, details such as cross-border rules, the treatment of DeFi, and transitional arrangements for the new licensing regimes are still being refined; there is a time gap between "a certain direction" and "complete rules." Third, certainty does not equal market size — institutional advantages must ultimately be realised through liquidity depth and international capital participation, which regulators alone cannot deliver.

EX.IO Research View

The real lesson of this transatlantic (and transpacific) comparison is that regulatory certainty is itself a scarce infrastructure — and it can be designed into institutions.

The U.S. experience shows that even a market with deep legislative tradition and powerful industry lobbying can see a market structure bill dragged into a countdown by political issues unrelated to crypto. Agency "gap-filling" addresses the urgent need but cannot deliver legislative-grade certainty — and it is precisely that certainty which institutional capital requires before making multi-year allocations.

Hong Kong's value lies not in looser or tighter regulation, but in predictability: rules land layer by layer as ordinances, circulars and consultation conclusions, with public timetables and clear perimeters. For the industry, that means compliance investment will not be zeroed overnight by political winds; for platforms on the licensed path, certainty is itself a source of long-term compounding — when institutions become the scarce asset, those who build to the rules are the beneficiaries.

Over the next two years, the industry will likely face a "two-speed world": America recalibrating between legislative restarts and agency rules, while Hong Kong continues to densify its network along track already laid. The real question is not which market is "better," but whether your business structure can stay resilient between the two tempos.

What to Watch

•      January 3, 2027: adjournment of the 119th Congress. Whether a second cloture vote occurs before then is the CLARITY Act's last theoretical window.

•      The 120th Congress: whether a market structure bill is reintroduced in new text, the Senate Banking Committee chair, and the partisan split.

•      SEC "Regulation Crypto Assets": comment outcomes and the final rule's permissiveness will determine how far agency gap-filling can go.

•      Hong Kong LegCo: scrutiny progress of the amendment bills for the dealing, custody, advisory and asset-management licensing regimes.

•      Hong Kong stablecoin ecosystem: the cadence of the second batch of issuer licences, and real adoption of licensed stablecoins in retail and institutional use cases.

Frequently Asked Questions (FAQ)

What is the CLARITY Act?

The CLARITY Act (H.R. 3633) is a U.S. digital asset market structure bill designed to draw the SEC/CFTC regulatory perimeter for crypto assets and create a registration framework for trading platforms. It passed the House in July 2025 and failed a Senate cloture vote 49-50 in September 2026.

What does the CLARITY Act's failure mean for the crypto industry?

In the near term, U.S. digital asset oversight will rely on SEC and CFTC rulemaking to fill the gap. Such rules are reversible and incomplete, so market-structure uncertainty is expected to persist into the new Congress.

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

Four layers: mandatory VATP licensing (effective June 2023); the Stablecoins Ordinance and issuer licences (effective August 2025, first licences granted April 2026); full value-chain licensing for dealing, custody, advisory and asset management (legislation in progress); and secondary trading of tokenised products plus market enhancements under the ASPIRe roadmap.

Why does regulatory certainty matter for the crypto industry?

Stable rules are the precondition for institutional capital to make multi-year allocations. Legislative-grade certainty ensures compliance investment is not zeroed by political shifts, so predictability itself constitutes a jurisdiction's competitiveness.

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

Disclaimer

This article is published by EX.IO Research for general information and educational purposes only. It does not constitute investment advice, an offer or a solicitation in respect of any securities, virtual assets or financial products, nor a prediction of legislative or regulatory outcomes in any jurisdiction. Legislative and regulatory developments referenced herein are subject to the publications of the relevant official authorities. Virtual asset prices may fluctuate significantly. Investors should carefully assess their own risk tolerance before making any decision and seek independent professional advice where necessary.