Clarity Act Hits Ethics Snag as White House Courts Law Enforcement Support
Democratic senators left a Tuesday meeting frustrated after Republicans walked back key elements of a tentative ethics agreement. Law enforcement groups head to the White House this afternoon.
Welcome to the Wednesday edition of the Crypto In America newsletter!
What you'll read: The two biggest hurdles standing in the way of a Clarity Act floor vote are getting attention this week, though progress on one has been rocky so far. Plus, House lawmakers turn to crypto taxes; Eleanor sits down with Jenny Johnson and Adam Back at Proof of Talk to discuss the convergence of Wall Street and crypto; and a breakdown of the headlines shaping the industry this week.
Senate lawmakers working to reach an ethics agreement as part of efforts to advance the Clarity Act to a floor vote came away empty-handed after a closed-door meeting Tuesday, as first reported by Crypto In America.
It was the first time a bipartisan group of senators — including Kirsten Gillibrand (D-NY), Ruben Gallego (D-AZ), Bernie Moreno (R-OH), and Cynthia Lummis (R-WY) — along with White House Crypto Council Executive Director Patrick Witt, had reconvened since reaching a tentative ethics agreement ahead of the Senate Banking Committee’s markup of the bill in May.
According to sources familiar with the discussions, key elements of that agreement — including a provision that would have allowed state attorneys general to sue the Department of Justice over a failure to enforce ethics provisions related to President Trump — were walked back by Republican members and the White House during the meeting amid concerns from senators outside the negotiations that such authority could also be used by both parties to target members of Congress.
The proposal has raised constitutional questions among legal experts.
“It’s fine for states to sue the federal government when it acts unconstitutionally, but the idea that state AGs could force DOJ to take action is just bonkers from a constitutional perspective,” J.W. Verret, an associate professor at George Mason University's Antonin Scalia Law School, told Crypto In America.
As an olive branch, Republicans proposed limiting enforcement authority to the Attorney General, and floated impeachment as an alternative potential remedy for ethics violations. Still, the offers were not enough to satisfy Democrats, who characterized them as an “about face” from the tentative agreement reached before the Banking Committee markup. Participants left the meeting frustrated, with one source describing the state of the negotiations as “rocky.”
The group is expected to reconvene Thursday in another attempt to break the impasse.
Ethics remains one of two major hurdles standing in the way of a floor vote, with Democrats, including Gallego and Senator Angela Alsobrooks (D-MD), indicating that their continued support for the legislation depends on the inclusion of strong ethics guardrails addressing President Trump’s crypto business interests. Since returning to office, Trump and his family have generated an estimated $2.3 billion from those ventures, according to Reuters.
Winning Over Law Enforcement
The other major hurdle is winning the support of law enforcement groups, which remain concerned that certain provisions in the Clarity Act could hinder their ability to investigate and prosecute criminals who use blockchain technology to facilitate money laundering and other illicit activity.
In an effort to address those concerns, the White House Crypto Council will host representatives from the National Sheriffs’ Association, the Fraternal Order of Police, National District Attorneys’ Association and other groups on Wednesday alongside officials from the Department of Justice, Treasury, FinCEN, and members of Congress.
The meeting is expected to focus on Section 604 of the bill, the Blockchain Regulatory Certainty Act, which would clarify that certain non-custodial software developers are not liable for how third parties use their code unless they intended it to facilitate illicit activity. Some law enforcement groups worry the provision could make it harder to pursue bad actors operating onchain. Administration officials are expected to argue the language does not shield criminals from prosecution and preserves law enforcement's ability to combat money laundering, sanctions evasion, and other illicit activity.
Just as resolving the ethics debate is key to winning Democratic support for the bill, so too is addressing concerns from law enforcement. Senators Mark Warner (D-VA) and Catherine Cortez Masto (D-NV), have signaled they will not support the legislation unless law enforcement believes those concerns have been adequately addressed.
Meanwhile, time is of the essence. The Senate has just 31 session days remaining before the August recess, which many lawmakers and lobbyists view as the unofficial deadline for passing the Clarity Act before Congress turns its focus to the midterm elections.
The Third Leg of the Stool: Crypto Taxes
The House Ways and Means Committee turned its attention Tuesday to what many in the crypto industry view as the final piece of the policy puzzle after stablecoins and market structure: taxes.
During a hearing on digital asset taxation, Congress’ chief tax-writing committee examined six Republican-led bills and a discussion draft aimed at modernizing how crypto is treated under the U.S. tax code.
The proposals address everything from mining and staking rewards to reporting requirements, crypto donations, tax treatment parity, voluntary disclosure, and the application of existing anti-abuse rules to digital assets. A separate discussion draft targets the use of offshore crypto tax shelters.
The three-hour hearing underscored growing momentum behind efforts to address long-standing tax issues facing the industry, but also revealed a more measured approach among Democrats, several of whom stressed the need to move deliberately before rewriting portions of the tax code to accommodate digital assets.
“We’re wading into a novel topic with a degree of caution, which is an important consideration,” said the committee’s top Democrat, Rep. Richard Neal (D-MA).
Despite broad support for Congress tackling crypto taxes, not all industry participants were satisfied with the proposals. Among the biggest complaints was the absence of a de minimis exemption for small Bitcoin transactions, which would allow users to make small purchases with the asset without triggering capital gains reporting requirements. Others argued the package leaves several key areas of the digital asset ecosystem without clear guidance.
"Yesterday's Ways and Means hearing delivered real substance," said Trish Turner, Tax Director and EA at Crypto Tax Girl and a former IRS Digital Asset Senior Advisor. "The voluntary disclosure program and staking clarity are meaningful wins. But DeFi, fraud victims, and the broader international tax framework remain largely unaddressed."
Industry leaders are expected to continue working with lawmakers on the proposals, but time is not on their side. With the midterm elections approaching and control of the House up for grabs, it remains unclear whether Congress can forge a bipartisan consensus before legislative priorities shift elsewhere.
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Does Crypto Need Wall Street, or Does Wall Street Need Crypto?
This week on the podcast, we air Eleanor’s interview from the 2026 Proof of Talk Conference in Paris with Blockstream co-founder Adam Back and Franklin Templeton CEO Jenny Johnson.
The conversation explores the convergence of Wall Street and crypto, including whether institutional adoption is at odds with Bitcoin’s original cypherpunk vision or simply the next stage of its evolution. Back and Johnson discuss the rise of crypto ETFs, tokenization, self-custody, and wallet-native finance, and why some of Wall Street’s hesitation to move onchain stems from the fact that blockchain technology threatens many of the business models that traditional finance relies on today.
They also dive into the future of tokenized money market funds, the growing use of digital assets as collateral, the debate over stablecoin yield, and why both speakers believe the lines between traditional finance and crypto will continue to blur in the years ahead.
Watch this episode on all platforms here.
Midweek Recap
ICYMI: Here are some of the biggest stories making headlines this week.
The CFTC unveiled its first proposed rule for prediction markets, outlining how the agency would determine whether event contracts violate federal restrictions on markets tied to areas such as war, terrorism, assassination, illegal activity, and gaming.
CME Group launched Nasdaq CME Crypto Index futures tied to a basket of leading cryptocurrencies including bitcoin, ether, SOL, XRP, ADA, LINK, bitcoin cash, and XLM.
Robinhood CEO Vlad Tenev says Robinhood Securities has won approval to underwrite IPOs and plans to be "disruptive" in the market.
SpaceX's IPO has reportedly attracted more than $250 billion in investor demand, nearly four times the $75 billion the company is seeking to raise.
Sam Bankman-Fried has formally applied for a pardon from President Trump, two years after being convicted of fraud in connection with the collapse of FTX.
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This is ridiculous. Basically, because congress dragged its feet on clarity, a business man, who happens to be president, starts a business and because you dont like it (I dont like it either) you want to include that states AGs (thats up to 50) can sue him for something that wasn't illegal (because you dragged your feet) in the first place.
So maybe in a few years we can include language in a bill that states if you were a governor of a state, that got caught either stealing money or committing fraud, then you run for president and win, you can be sued and have to resign? You cant make up a law to intentionally charge someone for doing something that wasn't illegal in the first place!