Bessent highlights agency route for crypto rules, flags expiration risk

Scott Bessent, the US Treasury Secretary, stated that crypto regulations can be achieved in Washington even without legislative action. During his speech at Ripple's Swell conference, he expressed disappointment over the Senate not passing the Clarity Act. However, he noted that the Treasury would leverage its convening authority to drive forward a regulatory framework via the SEC and CFTC. The downside for investors is the lack of permanence—regulations set by agencies can be overturned by future regulators.

Details of Bessent's remarks

Bessent referred to the SEC and CFTC as "great partners" in this endeavor. He also brought up debanking—the practice where banks terminate services to crypto firms, sometimes reportedly due to regulatory pressure. He stated that the Clarity Act might have avoided such a recurrence, but that regulatory best practices and safeguards can still mitigate the risk. Additionally, he contended that stablecoins will boost demand for the US dollar and Treasuries, positioning them as a vital funding source for the government.

The context is a Senate vote that took place six weeks earlier. On September 15, the Clarity Act failed to progress with a 49-50 vote, falling 11 votes short of the required 60. Since it was a procedural motion, the bill underwent no debate or amendments. The two issues that caused its failure were ethics regulations concerning officials' digital asset holdings and whether stablecoin issuers are allowed to provide yield or rewards.

Significance of the legislation

The Clarity Act would have resolved the long-standing issue of which US regulator oversees which cryptocurrency tokens. It would have assigned the CFTC authority over decentralized digital commodities, while the SEC would retain jurisdiction over fundraising and investment contracts. In its absence, the agencies are constructing the regulatory framework incrementally.

Efforts were already in progress prior to Bessent's speech. On August 18, the SEC unveiled Regulation Crypto Assets, and on September 17, it introduced an innovation exemption for platforms dealing in tokenized securities. Meanwhile, the CFTC forwarded its crypto market regulations to the White House for evaluation. Thus, Bessent's remarks represent more of Treasury endorsing the agency approach, with debanking now included in the discussion, rather than a new policy.

The drawback is the lack of durability. SEC Chair Paul Atkins has contended that legislation remains necessary for regulations that a subsequent regulator cannot rescind, and agency rules are also susceptible to legal disputes. JPMorgan commented last week that regulatory measures partially compensated for the Clarity Act's failure, but political and legal uncertainties will persist until Congress enacts a market structure law, as a future administration could overturn agency decisions.

Factors that could alter the outlook

A reintroduced bill would rapidly change the situation. According to JPMorgan, the Clarity Act is improbable to pass in the current year but might return in 2027. Conversely, a court challenge to an SEC or CFTC regulation would highlight the fragility of the agency-led strategy. Additionally, it is important to distinguish between intention and execution: Bessent stated Treasury could collaborate with the agencies, which is an expression of intent rather than a completed regulation.

Upcoming milestones

The upcoming tangible milestone involves the CFTC's crypto market rules exiting White House review, after which the SEC will finalize Regulation Crypto Assets. Any Treasury directives on debanking would provide the first concrete evidence that Bessent's new focus is substantive. Next week's US midterm elections are also significant, as the composition of the next Congress will determine if market structure legislation has a viable chance in 2027.

For readers, the key practical lesson is to view agency advancements as beneficial but temporary. More explicit regulations from authorities can reduce short-term uncertainty for exchanges and token issuers, but as long as Congress does not act, a portion of the regulatory risk premium will probably remain priced in. Consistent agency progress would reinforce the argument that the Clarity Act's failure was a postponement rather than a permanent setback. Halting regulations or legal battles would undermine that view.