🥛 CLARITY failed, crypto didn’t 💪

GM. This is Milk Road, the crypto newsletter that's the backstage crew making the market's chaos look choreographed.

Here’s what we’ve got for you today:

✍️ CLARITY failed, crypto didn’t.
🎙️ The Milk Road Show: The CLARITY Act Failed - What Happens to Crypto Now?
🍪 Polymarket traders are pricing in an 88% chance of a 25 bps rate hike by the FOMC.

On Sept 23, Milk Road's Martin sits down with Alumni Ventures to talk about blockchain and private markets. Save your free seat here.

Prices as of 2:00 p.m. ET. Powered by CoinGecko.

CLARITY FAILED, CRYPTO DIDN’T 👀

In our Monday newsletter, our in-house crypto whiz, John Gillen, said that Tuesday’s CLARITY vote was tremendously bullish for Bitcoin and crypto at large.

He predicted Bitcoin could close above $83K this week if the vote went our way.

Unfortunately, it didn’t.

The cloture vote needed three-fifths of the House to vote in the affirmative, but ended with 49 for, 50 against, and one no-vote.

Remember: the cloture vote wasn’t the Senate voting to make CLARITY law, but a vote on whether the Senate should even consider debating the bill in the first place.

Sen. Cynthia Lummis, the torchbearer of the CLARITY bill, said that for over a year, Democrats made countless demands and amendments to the bill, and as soon as those were met, they went right back and demanded even more.

By some estimates, more than 120 concessions were made to the bill following Democratic pushbacks.

So that’s the politics of it. But what actually happened?

Source: U.S. Senate

Some commentators claim the primary failure was the bill's ethics provisions.

Democrats wanted to extend the ethics rules to cover dependent children, require covered officials to sell certain crypto holdings within 180 days, tighten enforcement, place limits on ethics waivers, and require crypto promoters to disclose compensation.

These demands were rejected by the Republicans.

Some Democratic leaders named President Trump and his family as having pocketed ~$1.4B from crypto deals and criticized the crypto industry for wanting Congress to do its bidding by passing the Act.

Crypto Twitter was also abuzz with bankers aggressively lobbying against CLARITY, fearing a ‘deposit flight’ if provisions related to rewards for holding a payment stablecoin remained as-is.

With the midterm elections knocking on their doorstep, neither party wanted to send a message of weakness to their respective voter bases.

As a result, crypto just lost the biggest bill it has chased in a decade.

Good news is: the story ain’t over yet.

Regulators now hold the reins from here on out, and they’re continuing on as if Tuesday never happened…

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Save your free seat here.

CLARITY FAILED, CRYPTO DIDN’T (P2) 👀

Most of what CLARITY promised already exists.

In March, SEC Chair Paul Atkins and CFTC Chair Mike Selig signed a cooperation agreement.

Six days later, they published a joint token taxonomy that sorts crypto into five buckets:

Tools.
Securities.
Collectibles.
Stablecoins.
Digital commodities.

In August, the SEC put its ‘Regulation Crypto Assets’ framework out for comment, while Selig has already told staff to start building a market-structure regime with powers the agency already holds.

Here’s a snippet from Bitwise CIO Matt Hougan’s recent memo:

Source: Bitwise Investments

None of this requires a vote of confidence from the Senate. Hell yeah!

But while this means crypto goes on as usual, we’re still paying a price - and that price is permanence.

A future Chair can rewrite agency guidance without any oversight, while undoing a law takes another act of Congress, which almost nobody pulls off.

That’s why the big allocators were waiting on a statute.

The market reaction:

Bitcoin was down 3% from Monday’s $78K close to ~$75.8K.
ETH dropped ~4.5%.
SOL dropped ~5.4%.

Listed crypto equities reacted worse:

Coinbase closed ~10.1% down.
Circle dropped ~11.4%.
Galaxy was down ~8%.
Strategy fell ~5.4%.

(All while the Nasdaq-100 only shed a measly ~0.65%.)

If that wasn’t enough, crypto traders lost ~$571M as long positions liquidated over 24 hours - the biggest long wipeout since August 22.

BTC and ETH longs lost $190M each, as ~$300M in liquidations hit the market within 20 minutes of the vote.

Source: TradingView

So what’s next?

In yesterday’s vote, Republican Senator Tillis flipped from Yay to a Nay, so he could file a motion to reconsider later and try to bring it back.

So the bill’s not dead yet (it’s just ‘sleeping’).

The Senate still leaves in early October, and the House is already gone until after the midterms. The only real legislative window is a lame-duck session that needs cloture again, then passage, then the House, then a signature before January 3.

If we miss that window, I’m afraid we'll have to bid CLARITY adieu until the new year.

Either way - we’re staying focused.

Crypto isn’t going anywhere, even if the politicians can’t seem to sort their sh*t out.

RAOUL PAL: LIQUIDITY IS RUNNING AT 3%. IT SHOULD BE 11%.

Raoul Pal joined us on The Milk Road Show yesterday to talk:

Why liquidity growth is stuck near 3% when this point in the cycle usually runs 11%, and what unsticks it.
Why the Fed decision matters less than Bessent's bond tour and a weaker dollar.
His case for owning the infrastructure layer the machine economy gets built on.

PLUS: what "economic density" reveals about SUI, and why Raoul's last trade was three months ago.

You don't want to miss it. Click here to watch the full episode.