Clarity Act breakthrough imminent, sovereign funds may become the key to the crypto market's transformation

For a long time, crypto assets have been in a state of legal ambiguity within the global financial system. Traditional institutions have hesitated to enter on a large scale not because of technical barriers or distrust of the market, but due to legal uncertainties. When the regulatory classification of an asset class keeps changing, projects face the risk of being sued at any time, exchanges may receive subpoenas unexpectedly, and even attractive returns cannot lure risk-averse institutional funds. This has been the most absurd phenomenon in recent years: the SEC claims certain assets are securities, while the CFTC says they are commodities, creating regulatory uncertainty that acts as an invisible barrier preventing massive institutional investment.

Triple Breakthrough in Regulatory Certainty

The core value of the Clarity Act is to break this deadlock. Essentially, the law accomplishes three key things. First is clear classification. Highly decentralized assets like Bitcoin and Ethereum are likely to be categorized as “digital commodities” rather than securities, meaning SEC regulation will be more defined and predictable, ending the “swinging sword” approach. Second is establishing custody rules. Future exchanges and custodians will be required to implement segregated customer asset custody, directly addressing black swan events like FTX’s misappropriation of user funds—when risks are foreseeable and responsibilities traceable, institutions will feel confident allocating capital. Third is clarifying the compliance boundaries for market participants, enabling lawyers and compliance teams to sign off with confidence, rather than indefinitely delaying decisions due to “uncertain risks.”

The Invisible Tug-of-War Between Banking and DeFi

Behind what seems like a simple regulatory framework is a power struggle between the traditional banking system and decentralized finance. The real reason for the slow progress of the bill isn’t technical but rooted in vested interests—particularly around whether stablecoins can “generate yield.” Imagine users exchanging USD for USDT and earning DeFi yields instead of the 0.01% bank deposit rate—what impact would that have on traditional banks’ deposit pools? This isn’t just regulatory debate; it’s a deposit war. The current negotiations are a compromise: passive yield-generating features may be limited, but active DeFi participation and its earnings will be preserved. This step back from full deregulation opens space for the bill’s eventual passage.

Institutional Hesitation and the Awakening of Sovereign Funds

The true industry turning point will come when rules become clear—who will be the first to enter? The answer is the most regulation-conscious institutional investors—pension funds, insurance companies, and especially sovereign wealth funds. These massive pools of capital are currently on hold due to legal uncertainties, but once the Clarity Act passes, their approval processes will be activated. Sovereign funds are particularly noteworthy; with over $10 trillion in assets globally, their need for diversified portfolios will inevitably lead them to consider crypto assets. When these super-institutions start allocating, liquidity in the crypto market will experience a quantum leap.

From Gray Area Innovation to a Recognized Asset Class

In recent years, the real ceiling limiting crypto market development has never been technological progress or narrative innovation, but legal uncertainty. Once the law passes, crypto assets will transform from “gray area innovation” into a “recognized asset class.” This is not just a change in regulatory language but a fundamental shift in how crypto assets are positioned within the global asset allocation framework.

While the current market may seem calm, this calm often signals an impending major move. Market dynamics are not driven solely by news; major capital has already quietly positioned itself, and news simply seals the trend. Those who don’t understand are waiting for official confirmation, while those who do understand are waiting for sovereign funds and other large institutional inflows. When liquidity truly arrives, the structural changes brought by the Clarity Act will be fully reflected in prices.