The U.S. government is currently in the midst of its second-longest shutdown, now spanning 22 days, with significant implications for the cryptocurrency sector. As legislators grapple with the closure, the push for critical market structure legislation, including the Digital Asset Market Clarity Act, has hit a snag.
With the Senate focused on reopening the government, the window for advancing crypto regulatory measures has narrowed considerably. The timing is particularly crucial as the Senate seeks to align its efforts with those of the House.
Tensions Flare in Meetings
Wednesday witnessed a contentious meeting between Democratic senators and cryptocurrency industry executives, which was spurred by a leaked proposal mandating know-your-customer (KYC) and anti-money laundering (AML) regulations for decentralized finance (DeFi) platforms. This proposal ignited public backlash, leading to heated exchanges during discussions.
Democratic senators expressed frustration, accusing industry representatives of acting as a partisan extension of the Republican Party. They cautioned that ongoing public dissent regarding specific elements of the proposal could further complicate the passage of necessary regulations.
Bo Hines, former director of President Donald Trump’s Working Group on Digital Assets, questioned the outrage from Democratic senators over the crypto community’s engagement with policy discussions prior to legislative action.
Regulatory Progress Stalled
The shutdown has severely impacted the operational capacity of federal agencies, limiting them to essential personnel only. This has effectively paused the Securities and Exchange Commission’s (SEC) work on crucial digital asset market proposals, including approvals for exchange-traded products (ETPs) and initial public offerings (IPOs).
Cody Carbone, CEO of the Digital Chamber, emphasized that the lack of tax clarity resulting from the shutdown could incur greater long-term costs. He pointed out that the clock is ticking for significant legislative action to take place.
However, not all crypto-related operations have ground to a halt. Caitlin Long, CEO of Custodia Bank, noted that her firm was able to resolve a patent issue during this period, highlighting some ongoing progress despite the broader regulatory freeze.
Legislative Timeline Remains Optimistic
Despite the shutdown, Representative Bryan Steil from Wisconsin remains optimistic about the trajectory of the CLARITY Act, asserting that it remains on track for signing by 2026. He expressed confidence that the Senate would resume its legislative agenda promptly once the government reopens.
White House economic adviser Kevin Hassett suggested that the shutdown could soon conclude if bipartisan support is secured, indicating that moderate Democrats might play a pivotal role in facilitating negotiations.
Prediction markets on platforms like Polymarket and Kalshi suggest the shutdown may extend into mid-November, risking the possibility of breaking the previous record of 35 days set during Trump’s presidency.
Despite these challenges, Kristin Smith, president of the Solana Policy Institute, believes that political progress has not been derailed. She cited the recent meetings between industry leaders and senators as evidence of continued engagement in the face of adversity.
Summer Mersinger, CEO of the Blockchain Association, echoed this sentiment, reaffirming that the work to establish clearer crypto regulations continues unabated, even amidst the shutdown.
