Crypto champion Trump may be jeopardizing the industry's landmark legislation

Sweeping legislation to regulate the cryptocurrency industry is years in the making, but the sector's biggest political champion, President Donald Trump, may have also become one of its biggest political liabilities.

As Congress barrels forward on passing legislation called the Clarity Act that would establish rules for digital assets and likely unleash a wave of institutional investment, Trump's expanding crypto empire is giving critics fresh reasons not to support the bill, with the issue becoming increasingly contentious ahead of midterm elections in the fall. 

Currently, the Clarity Act awaits a vote in the full Senate, leaving the bill hanging in the balance as lawmakers grapple with whether to include ethics provisions that would restrict elected officials from participating in digital asset ventures, a debate fueled in part by Trump's significant crypto business interests.

Trump's 2024 election and embracing of crypto has been largely viewed as a major victory for the digital assets industry. After years of clashes with Biden-era regulators, many executives viewed his pro-crypto stance as a pathway to friendlier rules and long-sought legislation.

Trump, however, besides supporting policy designed to encourage innovation across digital assets, has also benefited financially. Even before taking office, Trump launched a $TRUMP memecoin that brought in millions of dollars. Both he and his sons have also supported other ventures, including World Liberty Financial. Bloomberg estimated that Trump and his family have made at least $1.4 billion from crypto-related projects since his inauguration.

While the Clarity Act has faced other major headwinds, particularly banks lobbying against legislation that would allow crypto platforms like Coinbase to reward customers for stablecoin deposits, Trump's involvement in digital assets and the ethics concerns it raises has become a hot-button issue with some lawmakers demanding the Clarity Act restrict how politicians engage with digital assets.

Several crypto industry sources are reluctant to openly discuss whether Trump's personal crypto interests are complicating advancement of the Clarity Act. Many people either appear defensive about the idea outright, or express an unwillingness to touch the subject because of the political sensitivity. 

“They don't want to bite the hand that feeds them,” Mark Hays, a senior policy analyst at Americans for Financial Reform (AFR), told The Block. The AFR is a progressive consumer advocacy group focused on financial regulation.

Hays added he has watched “ardent advocates” of both crypto and Trump acknowledge that the president's growing financial interests in digital assets are “not a good look” as Congress debates the Clarity Act. “Yet I don't really hear the industry doing anything about that,” he said.

Trying to predict where the Clarity Act goes from here comes as federal regulators such as the Commodity Futures Trading Commission and the Securities and Exchange Commission have forged ahead to clarify their stances on the crypto industry, which are viewed as very positive for the sector. However, those actions don't carry the same permanence as legislation like the Clarity Act aims to establish.

“It is exciting times where we're at right now with the regulations kind of going in our favor and obviously there's a lot of turmoil around Donald Trump and that's probably slowing some of the regulations down, like the Clarity Act," WeFi co-founder Reeve Collins told The Block.

On Capitol Hill 

Lawmakers, primarily Democrats, are pushing for ethics language to be included in the Clarity Act that would prevent the president, vice president, and other federal officials and their families from making certain financial transactions involving digital assets.

Earlier this month, the Republican-led Senate Banking Committee, one of the key panels in getting such a bill pass, advanced its version of the bill. This sends the bill now to be reconciled with their counterparts in the Senate Agriculture Committee before heading to a full Senate vote where 60 votes are needed for it to pass, meaning some Democrats need to support the legislation for it to clear the legislative body.

During the Senate Banking Committee vote, two Democrats, Sens. Angela Alsobrooks and Ruben Gallego, voted yes to advance the bill,  but with a caveat — to include ethics language.

Gallego's vote in the Senate Banking Committee was a "clear harbinger that the ethics talks were making big strides," a crypto industry source said.

This week, Sen. Alsobrooks told The Block she is insisting that a deal is made on ethics.

"To get to a bipartisan vote on the floor, I am demanding an agreement on ethics—that would apply not just to the President and Vice President but to all of us," Alsobrooks said. "The American people—especially my constituents—expect that from us."

The Clarity Act aims to regulate the industry for the first time at the federal level, set forth disclosure requirements and divvy up jurisdiction between two regulators — the CFTC and the SEC. 

Under a Republican-led Senate and House and a pro-crypto president, the likelihood of the new legislation passing initially seemed positive, particularly after the House passed its version of the Clarity Act with bipartisan support. Notably, the House version did not include significant ethics language.

Seemingly to put pressure on Congress, President Trump went on the offensive earlier this week. 

In a post on Truth Social, Trump vowed to "codify a FUTURE-PROOF Digital Asset Market Structure that cannot be undone by the Crypto Haters."

In an emailed statement, White House spokesperson Davis Ingle pointed to Trump's previous support of legislation.

"Through executive actions, supporting legislation like the GENIUS Act, and other common-sense policies, the administration is fulfilling the President’s promise to make the United States the crypto capital of the world by driving innovation and economic opportunity for all Americans," Ingle said.

In response to Trump's Truth Social post, the Senate Banking Committee, led by Sen. Tim Scott said he stood by Trump.

"Chairman @SenatorTimScott stands with @POTUS in the fight to make America the crypto capital of the world," in a post on X on Thursday. "The Clarity Act delivers clear rules of the road, protects consumers, and ensures the future of finance is built here at home."

When asked about ethics, a spokesperson for Scott pointed to comments he made last week during a crypto special with Fox Business' Charles Payne. 

"Ethics is something that's really outside of a banking jurisdiction, but it's still a really important issue," Scott told Payne.

Sen. Elizabeth Warren, top Democrat of the Senate Banking Committee, who has been steadily critical of Trump's crypto interests and the industry itself, said earlier this month during the vote that many members of the committee have "underscored the importance of getting this bill right."

"Our job is not to advance a pro-industry crypto bill that will grease the skids for the President of the United States, crypto grift while tens of millions of Americans can’t afford the basics," Warren said. 

A Senate Democratic spokesperson said that any bill that doesn't have guardrails preventing federal officials, including the president, from profiting off crypto "undermines the legitimacy of the crypto industry."

Additionally, a Senate staff member familiar with negotiations said it would be Trump's fault if Clarity is not passed into law. 

"If Republicans can’t meet Democrats on an ethics compromise because of their loyalty to the President and his open corruption, CLARITY is unlikely to pass," the source said.

Nic Puckrin, CEO at CoinBureau, pointed to the challenge of securing support from Democrats.

“I think getting enough Democratic senators to support this bill without any sort of ethics provisions so that Trump can't get involved in crypto through these kinds of ventures is going to be slim," Puckrin told The Block.  

Who's at fault?

Another sentiment expressed by some crypto folks is that ethics is not a crypto issue, but more political. 

When asked if Trump would be someone to blame if Clarity is not passed into law this year, a crypto industry source attributed its potential failure to other factors. 

The ethics provision does not belong in a crypto market structure bill, the source said, adding that industry participants have largely stayed out of the debate and remain focused on issues such as decentralized finance.

"You could argue that this is maybe a way for Democrats to try to get their kind of flesh, or at least get some of their political hit points on the Trump administration, while also being seen as pro-business, which is kind of a very tough line for Democrats to put themselves in the middle of," the source said. 

Democrats could cast the blame on it falling apart on Trump and his administration, they added.

The Senate could also be at fault because they decided not to take up the House's version, the source said. Over the past year, the Senate has pushed toward passing its versions, instead of the House's for a number of bills, including Clarity, a stablecoin law and housing. 

Last year, when the House was working to pass stablecoin legislation — the Genius Act —  procedural votes kept getting stuck after some Republicans took issue with a provision to ban central bank digital currencies. 

Frustrations are now boiling up, the source said. 

"So this is kind of a larger macro issue, where the Senate takes a lot of the House's work, and then they either, quote, improve on it, or they change it or they tweak it — and they tell the House to stomach it," they added. 

Either way, there is also concern within the crypto industry over political issues in a regulatory bill, the source said. 

Earlier this week in a research note, Jaret Seiberg, managing director at TD Cowen's Washington Research Group, said that the Clarity Act is becoming less likely to pass this year as the political environment worsens. Developments, including a deal barring the Internal Revenue Services from auditing past tax returns of Trump and his family, as well as a recent New York Times investigative report examining how prediction markets and crypto interests have pushed their agenda with the Commodity Futures Trading Commission, are not helping Clarity's chances, argued Seiberg.  

"It makes it politically hard for a Democrat to back a crypto bill unless it contains conflicts of interest standards that apply to the President," Seiberg said.