What Happens to Crypto If the CLARITY Act Fails?

You're taking a live look at Capitol Hill this morning.

Congress is set to go on summer recess today, though there are talks to extend the current session into next week.

But still, if for now it is confirmed that lawmakers will skip town without passing the Clarity Act, which is at the top of the clarity Industry's regulation list.

So while investors had come to the grips with this over the past few weeks, a lack of clarity can certainly play a role in keeping the market bearish.

So joining me now to break this down is Anthony Georgyass, founder and general partner at Innovating Capital.

Anthony, thank you so much for joining us today.

Likewise, thanks for having me.

So Anthony, Senate Majority Leader John Thune saying that the Clarity Act will be the top of the agenda when Congress returns in September.

So what will crypto market structure look like if clarity does pass, and what will it look like if it doesn't pass?

Yeah.

I think generally speaking, you know, the market's treating 3D act like some sort of binary crypto bollbar catalyst, and I think that's kind of generally the wrong framework.

It's, it's really a question of whether the institutionalization of crypto is gonna happen at 60 miles an hour or 30 miles an hour, right?

Uh, you know, failure in this regard isn't like it's gonna set us back to 2022 by any means, and it's not necessary for crypto to survive.

It is necessary to make the rules much more durable for enormous pools of regulated capital to come in and underwrite them.

And so, frankly speaking, we are gonna see progress and institutionalization irrespective of whether or not it passes today or passes down the road, just more of how fast.

So Anthony, I want to talk a little bit more about how investors and institutions are positioning themselves based upon the possibility of no clarity.

Right, right.

So I think a lot of investors are looking at it from a, you know, a couple of aspects, you know, passage of clarity or no clarity, um, really doesn't necessarily totally impact Bitcoin from a lot of investors' perspective.

It's more bullish or bearish around the assets that permeate around the web 3 sector.

Bitcoin doesn't need Washington's, you know, permission anymore, right?

The biggest repricing here is everything whose valuation still carries this sort of regulatory discount.

You know, think about things like Ethereum or Solana, decentralized network assets, right?

Exchanges like Coinbase, custody providers like Bitco, tokenization infrastructure, real-world assets, on-chain credit providers like Falcon X or Galaxy.

And you know, these large institutional players are effectively, you know, can we continue to legally build ourselves around these networks and benefit, benefit from an uptick in velocity and transaction volume overnight.

So Anthony, as odds of the bill passing a swing to the downside, what signals are you watching first from Washington and from the market?

Yeah, well, I do want to say, I mean there is a little bit of kind of a strange, you know, contra or contrarian view that's, that's bullish in the context of crypto of the clarity Act failing, um, you know, ironically, right, failure may be less bearish for crypto prices than it is for, you know, American crypto companies, um.

Because it effectively is going to lead to really this sort of regulatory battle that will resume tomorrow, right?

So, you know, regulatory progress remains, you know, somewhat dependent on who's sitting in Washington.

I think if the Clarity Act does tend to fail or continue to get punted.

Um, you know, you're dealing with the sort of market dynamic where they'll learn to tolerate rules and assess the risk, but it's also going to open up the door for digging even deeper into, you know, some of these sorts of regulatory pushes and presses which could honestly lead to even, you know, more regulatory certainty down the road.

Uh, and so, you know, if you think about obviously.

The biggest effective potential losers from failure, I would say it's largely actually probably, you know, the US venture formation itself.

If I'm underwriting, you know, a protocol for 10 years, I can't necessarily, you know, build that investment case around who I think is going to win the 2028 election or the, you know, the 2030 election to figure out.

You know, exactly what type of regulatory posture we have, whereas hedge funds or liquidity providers can kind of price political volatility.

Uh, and so I think the longer durated e-liquid type of securities or more so venture capital formation type opportunities probably stand to get, you know, potentially punished the worst for this regulatory uncertainty.

So, so Anthony, this week we saw BlackRock launch tokenize uh money market funds in Europe on Solana and Ethereum.

So take us through the growing demand for stablecoins and tokenized treasures and what exactly does this mean for banks, uh, custodians, and broader market structure.

Yeah, absolutely.

I mean, listen, you know, I think the, the biggest thing first and foremost is, you know, frankly, you know, number one, right, you're seeing this sort of permanent capital source out there, right?

Um, you obviously saw it with the Genius Act that, you know, took place, uh, you know, several months ago, right?

That has sort of set the stage for really what it means to be a stablecoin issuer and not.

There's clearly demand, you know, on the previous segment to this, talking about 24/7 access to markets, access to liquidity, um, and frankly speaking, it's, it's happening as it stands today and whether it's, you know, JPMorgan, whether it's BlackRock, they're looking for ways to effectively compete and differentiate and leverage this existing technology.

To be able to ensure that their clients, their liquidity providers have access to these 24/7 capital market solutions which the decentralized technology and blockchain allows for.

As Christopher.

All right, and Anthony, last question for us.

So tell us how a shift towards 24/7 tokenized markets could change how investors think about liquidity, volatility, and risk in US equities.

Yeah, so I mean, frankly speaking, it's a little bit of kind of a, a flywheel effect, right?

You know, as you obviously start to open up these markets to 24/7 liquidity, you're gonna see situations where there is a lot more opportunity for arbitragers.

Those arbitragers will, will enter the market and effective. provide liquidity by way of, of ordering out certain situations and attract more arbitragers as that occurs, you have market makers that step in to absorb in price and set and provide liquidity which provides depth to these markets which makes them more appealing for retail investors and various traders and The depth of the markets continue to compound or it gets to the point where institutional players, you know, get in.

The days of, uh, you know, Citadel trader, you know, coming in at, at 8, clocking in 9:30 to 4, and then leaving the office at 5 are probably long behind us when you have markets that are going to be 24/7.

You have risk on postures that are going to be on at all points in time.

There's going to be a lot more focus on, uh, you know, effectively how to access.

Certain types of derivatives like perpetuals or futures in order to have consistent, you know, hedging positions and postures, you know, on your books at all times.

And so I really think that generally speaking, all aspects of, you know, the equity capital markets and derivatives that follow will see this sort of compounding effect of transaction volume and liquidity depth.

Awesome.

Well, Anthony, thank you so much for joining us today.

Appreciate you being on the show.