Crypto Legislation Stalled: Partisan Clashes Delay CLARITY and FIT21 Bills into 2027 Amid Trump Ethics Battle

Partisan gridlock on conflict-of-interest measures targeted at Trump administration officials and family members with crypto ties is causing ongoing delays into 2026–2027 for crypto market structures like the CLARITY Act and FIT21. Democrats are pushing for strict ethics guidelines to stop senior officials from owning or operating crypto companies, hence creating an impasse as Republicans oppose applying these during the current term. Unsolved discussions on DeFi and custody concerns, political election year politics, and government funding deadlines on January 30 all pose additional obstacles that delay scheduled Senate Banking Committee markups formerly set for January 15.

Having advanced in the House, the Senate version of the CLARITY Act, equivalent to House-passed H.R.476.3, has Senate Chair Tim Scott championing a bipartisan markup soon, though ethics concerns overshadow debates. Although FIT21, passed by the House in May 2025 by a 279-136 vote, aims to split oversight between the SEC and CFT,C but remains frozen in Senate reconciliation, coupled with a draft from the Agriculture Committee. TD Cowen projects passage around 2027 with full regulations by 2029, notwithstanding some hope from finished staff technical work and possible compromises like a three-year delay on ethics enforcement, while prediction markets give 77% odds of approval before then, dependent on 2026 midterms not shifting House control.

These delays reinforce a regulatory gray area, producing $952 million in late-2025 outflows and favoring more transparent systems in the EU and Asia, while helping interim SEC rulemaking, like the possible repeal of SAB 121. With institutions offering interim advice and the SEC looking at "innovation exemptions," industry ramifications include uncertainty around custody and DeFi clarity. This connects to bigger macro trends of institutional flows and ETF rushes, therefore possibly prolonging volatility as the market waits resolution.