By Hannah Lang and Michelle Price
WASHINGTON, Sept 16 (Reuters) - The U.S. Senate's vote against advancing a major crypto bill amid persistent opposition from Democrats and a handful of Republicans marks one of the most significant setbacks for the industry, showing the limits of its muscle in Washington.
Senators on Tuesday voted 49-50 against advancing the Clarity Act, which would establish a regulatory framework for the $2 trillion cryptocurrency market, putting the industry on a firmer legal footing,
with four Republicans voting against. Crypto companies say the bill is crucial to their future in the U.S.
The defeat came even after the industry spent more than $300 million combined on the 2024 and 2026 elections to push crypto policy into the political mainstream by getting dozens of crypto-friendly candidates into office and through national advocacy campaigns.
Tuesday's defeat showed that even the crypto political machine can stumble when faced with enough political challenges, although with a roughly $130 million war chest remaining it's unlikely to be down for long, said analysts, executives and academics.
In this case, U.S. President Donald Trump's personal crypto dealings became a flashpoint for Democrats just as their prospects improved ahead of the November midterms, while fierce opposition from the influential banking lobby dragged talks deeper into election season and also succeeded in peeling off some Republicans, they said. Democrats are likely to win the House in November, although the race for Senate control is too close to call.
"The politics here changed slightly in a way that made it less difficult for the Democrats to vote against it," said Ian Katz, managing director at Capital Alpha Partners. "I think they feel like maybe they don't need to fear the crypto lobby and campaign money as much as they have."
While Tuesday's vote was procedural, it was widely seen as a litmus test that would determine the bill's fate. The crypto industry vowed to keep fighting to revive it.
"The industry is going to continue to advocate for pro-crypto policy. That means supporting pro-crypto candidates, whether they're on the left, right, in the center," said Kevin Wysocki, head of policy at crypto platform Anchorage Digital.
TRUMP DEALINGS STIFFENED DEMOCRATS' RESOLVE
The bill aims to fix what the industry says is legal ambiguity by determining which cryptocurrencies fall under securities or commodities laws.
The sector has argued, often successfully, that such legislation would safeguard American innovation and jobs, while protecting consumers. Its 2024 spending helped usher in a crypto-friendly White House and a Congress willing to champion its legislative agenda, leading to last year's GENIUS Act paving the way for greater adoption of dollar-backed tokens.
That law was bipartisan and many Democrats also supported a Clarity-style bill in principle, provided it had sufficient safeguards, including restrictions on officeholders profiting off digital assets. But the crypto industry struggled to build bipartisan consensus around Clarity as the profitability of Trump's own crypto ventures became clearer, analysts and lobbyists said.
In June, Trump reported more than $1.4 billion in income from his family's crypto ventures, stiffening Democrats' resolve to push for tougher language on officeholder restrictions, said the people. The White House ultimately agreed to several restrictions but Democrats said they didn't go far enough.
"The challenge for the industry is that this has become a partisan issue," said Brian Gardner, chief Washington policy strategist at Stifel. "For the political left, crypto has almost become... very tied to Trump personally, and that makes it too hot to touch for many Democrats."
A White House spokesperson did not immediately respond to a request for comment.
BANK LOBBY FIGHT DRAGGED OUT TALKS
The crypto industry also met its match in the seasoned banking lobby, which argued a provision in the bill could create competition for deposits, hurting lending. The sector mobilized its established national network of thousands of community bankers to fight that language, helping to drag out talks. Banks on Tuesday said they will continue working for targeted policy changes.
Stand With Crypto, an advocacy group backed by Coinbase, has been trying to build its own national movement.
Speaking to Reuters in August, its director Mason Lynaugh said crypto is an emerging voting bloc. In a Tuesday statement, he said it was now clear which lawmakers "are against us," and that its members would vote accordingly.
Still, some polls suggest crypto policy is not a priority for most voters and that the industry's Washington influence may actually be a turnoff. An April Politico poll found just 18% of respondents said they want lawmakers to prioritize crypto rules — far behind other hot-button issues, such as affordable housing at nearly 50%.
In some Democratic primaries, progressive candidates have successfully attacked opponents over their ties to the crypto industry.
"Candidates who had a lot of crypto money still didn't make it," said Democratic Senator Elizabeth Warren, when asked by Reuters about crypto spending during a media call ahead of the vote.
"The American people like to hear from a candidate who says, 'I can't be bought.'"
(Reporting by Michelle Price and Hannah Lang;Editing by Nick Zieminski)
