BitGo CEO Mike Belshe Warns US Crypto Is at Risk After CLARITY Act Failure

Belshe warns that market structure risk looms over the US cryptocurrency market, as crypto companies offer exchanges, brokerage, and custody services in a single platform, increasing counterparty risk and creating points of failure.

The CLARITY Act’s failure in the Senate has left many questions about the future regulation of the US crypto market. As the industry prepares for the 2027 deadline, experts are concerned that the current framework leaves the market vulnerable to structural risks.

Related: Crypto Tax Bill Just Changed: What the New US Rules Could Mean for Bitcoin, Stablecoins and Staking

What Happened to the CLARITY Act

The CLARITY Act failed to progress in the Senate on Sept. 15, 2026, after a vote on a motion to invoke cloture for H.R. 3633. The measure got 49 votes in favor and 50 votes against the cloture motion, according to the vote tally. The outcome was well below the 60-vote threshold needed to bring the act to the floor.

Why Did the CLARITY Act Fail in the Senate?

Senator Republicans, Democrats, and others could not resolve the various disagreements over the contents of the measure. Ethics-related issues, which were a point of contention between Democrats and Republicans, were complicated further by debates over stablecoin rewards and bank regulation. A number of revisions were suggested and then rejected, but not enough bipartisan agreement was reached for the bill.

How Did the Senate Vote on the CLARITY Act?

The final vote on the CLARITY Act Senate motion was 49-50 against invoking cloture, with one senator abstaining. The outcome meant that not a single Republican senator who voted for the passage of the bill could offset Democratic opposition and Tillis’s switch to the ‘no’ camp.

The vote was sometimes presented as a 50-49 outcome in the U.S. Senate, because of how the procedure vote was modified. Tillis switched his position to keep the reconsideration rights open. In the end, the Senate recorded a 49-50 vote on the motion to invoke cloture.

Why Did the Bill Need 60 Votes to Advance?

It should be noted that the vote related to the motion to proceed, and not the final approval of the bill. By virtue of the way the U.S. Senate works, a three-fifths vote is needed to invoke cloture and end debate. With 100 senators, that means a minimum of 60 senators need to vote for cloture. A simple majority would not be sufficient for passing the motion.

Which Republican Senators Voted Against the CLARITY Act?

The four senators who voted against the bill were Susan Collins, Josh Hawley, Jerry Moran, and Thom Tillis.

Why does it matter that Tillis switched his vote in the final Senate vote on the bill? Tillis switched to the ‘no’ camp for procedural reasons and to allow for reconsideration. He voted for the passage of the bill, but switched his vote to respect the option of reconsideration.

Is the CLARITY Act Dead or Could It Return?

The bill’s failed vote prevents it from moving forward before Congress leaves Washington ahead of the midterm elections. However, the U.S. Senate still has a chance to reconsider the motion.

A lame-duck session could be a possibility for crypto-related legislation after the elections. Alternatively, Congress can revisit the issue of crypto market structure later in 2027, depending on the outcome of the election.

Why BitGo CEO Mike Belshe Is Warning About the CLARITY Act Failure

Belshe expressed support for the CLARITY Act’s passage, arguing that market structure rules are critical to the proper functioning of the financial system, especially for digital assets. His concern is that firms that combine trading and custody functions do not have sufficient safeguards in place.

What Did Mike Belshe Say About the CLARITY Act?

Mike Belshe said the CLARITY Act’s failure left U.S. capital markets vulnerable to unresolved structural risks. He warned that crypto companies can increasingly offer a one-stop shop for trading, brokerage functions, and custody services. According to Belshe, the absence of rules around integrated financial structures can lead to concentrated risks.

Why Does Belshe Say the Failure Leaves US Crypto Exposed?

In traditional financial markets, major economic functions are split between multiple firms to avoid the dangers of counterparty concentration. In crypto, companies are offering a one-stop shop to minimize costs and provide a more convenient experience.

Belshe argues that convenience comes at the expense of systemic risk, especially if a firm combines exchange-trading operations with brokerage capabilities. If a business fails, the combined effects and ripple effects of a single default would be felt throughout the financial system. The same would be true in the event of a security breach, liquidity crisis, or any other emergency in which institutional investors rely on the firm’s services.

Why Does Belshe Compare the Risk to Lehman Brothers?

Belshe uses Lehman Brothers as an example of counterparty concentration and the systemic risks that a default can inflict on the financial system. The failure of the investment bank triggered wider losses due to the interconnectedness of its counterparties. In Belshe’s view, a similar outcome can occur if the functions currently available on a single crypto platform were to become consolidated under one counterparty.

The Crypto One-Stop-Shop Problem

Crypto companies have been offering a one-stop shop for exchanges, brokerage services, and custody operations. Some are also looking to introduce derivatives trading, lending and borrowing products, and settlement services through their platform in order to make participation more convenient.

Read More: CLARITY Act Failed. Now SEC and CFTC Could Rewrite U.S. Crypto Rules

Why Are Crypto Companies Combining Exchange, Brokerage and Custody?

The integrated approach reduces costs and increases adoption by making it possible to perform all financial operations under one account. Users benefit from simplified interactions with their counterparties and do not have to worry about the logistics of multiple counterparties.

The one-stop shops help businesses capture more value from their operations by combining the different functions and incorporating multiple fees. At any given point in time, a company can provide services that charge a fee for trading, custody, or lending, as well as one-time charges for derivatives trading.

How Can One Company Control Trading, Brokerage and Custody?

A large crypto company can have separate units for exchange operations, custody, and brokerage services. All units are owned by the same parent company and operate under the same brand.

Why Does Belshe See Vertical Integration as a Systemic Risk?

Vertical integration can increase the likelihood of systemic risks if the integrated functions suffer defaults or disruptions. If one trading or custody unit goes insolvent or experiences an operational disruption, all other units will feel the ripple effects of the failure.

Could One Crypto Company Become a Single Point of Failure?

A major crypto company can become a critical node in the U.S. crypto market infrastructure. The dangers arise from the fact that the same company controls a significant portion of the trading operations and custody services. Such concentration of power does not necessarily lead to failure, but can intensify the consequences of a default or disruption.

Why Crypto Custody Matters After the CLARITY Act Failure

Crypto custody is the focal point of the debate, as many digital assets are based on a simple fact — private key possession equals ownership, and the inability to possess or control a private key results in a permanent loss of the asset. This characteristic is especially important for institutional markets.

What Is Crypto Custody?

Crypto custody refers to the practice of keeping private keys or the authorizations needed to control specific crypto assets. The custodians offer a professional infrastructure that aims to mitigate the risks of theft, loss, and unauthorized withdrawal of assets.

Institutional custody may involve cold storage, risk management policies, insurance policies, authorization protocols, and settlement and reporting infrastructures for financial institutions.

Why Should Trading and Custody Be Separated?

Trading and custody separation can help reduce risks associated with single-point failures and ensure the segregation of operations between the two involved parties. The separated infrastructure can help ensure that a crypto trading platform and custodian are independent but can still operate together.

An example illustrates the potential benefits of such an approach, where a crypto trading company defaults, but the custodian holding the user’s assets outside the company remains available for deposits and withdrawals. The separated version can also be easier to regulate since traditional financial markets already utilize a similar model.

What Happens When One Company Controls Customer Assets and Trading?

When a crypto business holds customer assets and operates as a counterparty to their trades, it creates a concentration of risk and places customers’ funds at risk. A default of such a business creates liquidity risks for the customers and the crypto market as a whole.

Liquidity risks emerge as the crypto company’s default lowers the ease of selling or withdrawing funds from the business. Additionally, the default may create counterparty credit risks for other financial institutions and market infrastructures, with reduced customer collateralization.

How Could a Custody Failure Spread Across the Crypto Market?

A default scenario of a large custodian may impact the crypto market and many different types of market participants. The custodian can hold assets on behalf of crypto exchanges, institutional investors, market makers, funds, and regular investors. The default event may hinder the ability of these investors to access their collateral on the custody platform.

This default can create cascading defaults in the crypto market as some parties may need to liquidate their positions to pay off the custodian’s debts, and others may experience missed collateralization events. This creates liquidity pressures for these investors, and the market infrastructure counterparties respond by reducing their exposure and collateralization risks, which can cause liquidity issues in the market.

What the CLARITY Act Would Have Changed for US Crypto

The CLARITY Act 2026 would give the U.S. crypto market a more durable and predictable legal foundation. It would establish a framework for the regulation of the digital assets industry by outlining the responsibilities of policymakers and introducing guidelines for intermediaries in the digital commodity market.

How Would the CLARITY Act Have Regulated Crypto Market Structure?

The CLARITY Act would establish statutory requirements for the digital asset markets by laying out the requirements for companies authorized to perform functions related to digital commodities. The bill would cover all key aspects of intermediation, including market oversight and disclosure requirements. Proponents of the bill say that it would encourage adoption by crypto-native companies.

How Would the Bill Have Defined the SEC and CFTC Roles?

A key part of the CLARITY Act is the determination of how the responsibilities of the SEC and CFTC would be divided. The act would establish a clear distinction between crypto tokens that qualify as securities and those that do not. The bill would make it possible for the regulator with the appropriate authority to supervise the functions performed by market participants.

How Would the CLARITY Act Have Affected Crypto Exchanges and Brokers?

Exchanges and brokerage firms would benefit from the clarity provided by the bill, which would establish a federal oversight system. Companies would be able to structure their operations around the specified requirements for digital commodities intermediaries. The rules around customer assets and trading would also provide the guidance institutional investors needed to get involved in the U.S. crypto market.

How Would the Bill Have Changed Crypto Custody Rules?

The bill contains several important provisions for the crypto custody industry. The CLARITY Act crypto custody provisions would give intermediaries a more predictable legal framework.

Proponents say that this would reduce the barriers to institutional participation in the market. Critics argue that the level of protection for integrated firms is insufficient. The dispute has fuelled the debate over the appropriate U.S. crypto market structure.

What Happens to US Crypto Regulation After the CLARITY Act Failure?

The failure of the CLARITY Act does not mean that the U.S. crypto market is completely unregulated. The existing securities, commodities, banking, and anti-money laundering laws would continue to apply.

What Crypto Rules Remain in Place?

Existing federal statutes would continue to apply to the U.S. crypto market. Some of the states have also issued licensing requirements for crypto companies. The stablecoin legislation and banking regulations also set forth requirements that crypto firms have to follow.

How Are the SEC and CFTC Responding?

The SEC and CFTC would continue to develop guidance for the crypto market in accordance with their authority and the applicable statutes. The agencies can issue regulations, guidance letters, and enforcement directives without the need for Congressional approval.

Read More: Crypto Legislation in Trouble? Experts React After CLARITY Act Vote

Can SEC and CFTC Rules Replace the CLARITY Act?

The actions of the agencies can partially address the issues but cannot fully replace the role of legislation in establishing a uniform framework. The SEC, CFTC, and other agencies do not have the capacity to establish the type of multi-jurisdictional requirements that the CLARITY Act would provide for.

Why Are Agency Rules Less Durable Than Federal Legislation?

Current rules can be repealed and replaced by subsequent agencies, while court challenges can also limit their scope. Legislation establishes requirements under the direct authority of Congress. It can be repealed only by another act of Congress. This makes it much more difficult for agencies to modify legislation, which is why rules passed by Congress are viewed by crypto companies as preferable to executive orders.

What the CLARITY Act Failure Means for Crypto Companies

Crypto companies are likely to continue to operate in a state of uncertainty as they navigate the risks posed by inconsistent rules. At the same time, major exchanges are likely to continue to expand their offerings, despite the challenges that can arise at the implementation stage.

Will Crypto Exchanges Continue Expanding Their Services?

Large crypto exchanges have strong incentives to adopt a one-stop-shop approach. They not only want to facilitate trading, but also want to make it possible for investors to lend or borrow funds. In addition, they want to provide custody services to institutional investors and facilitate derivatives trading.

Could Regulatory Uncertainty Increase Market Concentration?

Regulatory uncertainty can limit the growth of individual exchanges, but the trend toward expansion will continue because of the benefits that such companies can provide. The most successful exchanges are likely to have the resources required to comply with the requirements.

What Does the Failure Mean for Crypto Custodians?

Regulatory uncertainty can increase market concentration because it imposes high fixed costs on potential entrants. Small companies can be disadvantaged compared to large exchanges that can afford to hire specialized experts. Concentration will also be reinforced by the fact that exchanges can get an additional competitive advantage through licensing.

Could Smaller Crypto Firms Be Put at a Disadvantage?

The failure of the bill has indirect implications for investors by influencing where their assets are kept and how they can access their assets.

What the CLARITY Act Failure Means for Crypto Investors

One-stop crypto platforms can increase the counterparty risk for investors by providing custody services and facilitating trading operations for the same customer. The combined exposure can create dangerous levels of concentration, especially for investors who keep the majority of their assets with the exchange.

Could One-Stop Crypto Platforms Increase Counterparty Risk?

Independent custody can reduce the counterparty risk by allowing investors to store their assets with an independent custodian. However, such custody would also entail additional risks, as the custodian would have to be compensated for the services.

What Happens to Customer Assets if a Major Crypto Firm Fails?

The legal status of customer assets held by a crypto company would dictate what happens to them in the event of default. Assets that are held separately from the liabilities of the firm have the best chances of surviving the failure of a crypto company.

Poor record-keeping procedures can complicate the separation of assets. If investors want to retain their assets, they will have to go through a protracted legal procedure to reclaim them. Crypto bankruptcies have shown that the process can take months or even years.

Why Does Separation of Trading and Custody Matter for Investors?

The separation of trading and custody reduces the number of risks that investors are exposed to by concentrating their assets with a counterparty. Separation allows investors to choose two different counterparties that can provide the necessary services without exposing themselves to the risks that would be entailed if they chose to use the same counterparty.

Could a Crypto Collapse Be Worse Than Lehman?

The scale and nature of the collapse would dictate whether and to what extent the consequences would be felt by the market. For now, crypto companies are small compared to the size of the financial system.

What Mike Belshe Means by a Lehman-Style Risk

Lehman’s risk refers to the danger that the collapse of a major financial institution would cause systemic defaults in a wide range of counterparties. The risk arises from the fact that the same institution has multiple counterparties that would be unable to recover their assets upon failure.

How Would a Major Crypto Platform Failure Spread?

The initial stages could result in the freezing of withdrawals and the disruption of trading. One potential aftermath is the selling by the platforms of their assets to raise liquidity.

In the meantime, market makers might decrease their exposure, while lenders are demanding higher collateralization. The contraction of liquidity may lead to increased volatility. Subsequently, these effects could spill over into other exchanges, even those with no direct connection to the initial incident.

Why Could Combined Exchange, Brokerage and Custody Increase Systemic Risk?

Each component entails different dimensions of risk, and consolidation creates interdependencies among them. One significant default could disrupt all aspects of trading in a business.

Exchanges carry trading and operational risks, while broker-dealers introduce counterparty exposure. At the same time, custody consolidates assets, offering protection.

How Is Crypto Different From the 2008 Financial System?

Crypto assets are significantly smaller in scale compared to the banking system before the crisis. Moreover, major crypto exchanges utilize settled transactions differently from securities settlement in traditional markets.

Furthermore, crypto-exchanges allow perpetual contracts and derivatives, where either long or short positions can be closed at any given time.

There are also assets in crypto-markets that entail a permanent loss of funds if private keys are lost, as opposed to cash or securities. Finally, crypto-markets operate continuously across borders with no interruptions.

What Happens Next for the CLARITY Act?

The future of the CLARITY Act depends critically on Congress in the wake of the elections. Supporters of the bill have several options, but they need to understand how the political winds have changed.

Could the Senate Reconsider the CLARITY Act?

Yes, the CLARITY Act is still alive in the U.S. Senate. The procedural changes mean that there is an option to reconsider it in the future. The outcome will depend critically on whether there would be sufficient support for it.

Could Congress Rewrite the Bill After the Senate Failure?

Congress can always revisit the issue of crypto market structure. The bill’s proponents would have to work towards passing a new version of the legislation, which could see changes to ethics provisions, banking provisions, stability provisions, and others.

Could the CLARITY Act Return During the Lame-Duck Session?

Yes, the lame duck session is a possibility. Lawmakers tend to revisit old issues in the wake of an election. If political circumstances change, the new Congress can reconsider the bill.

What Could Happen to US Crypto Regulation in 2027?

Congress can revisit the issue if the bill fails again. The SEC and CFTC can continue to issue rules and directives as the situation requires. A new Congress can also introduce new legislation to address the situation.

BitGo CEO Mike Belshe’s Warning Explained

Belshe’s warning is significant because it indicates that he thinks that lawmakers have underestimated the risks associated with concentrated structures. He has reason to believe that integrated companies will play an increasing role in the U.S. crypto market.

Why Does Belshe Think US Crypto Markets Are Vulnerable?

Belshe thinks U.S. crypto markets are vulnerable because companies are becoming more concentrated and Congress does not have a statutory market structure in place.

What Are the Risks of Crypto One-Stop Shops?

A crypto one-stop shop offers convenience to customers who want to both trade and custody assets without dealing with multiple counterparties. Such an option is associated with the risk of concentrated operational and financial exposure to the same entity, with the danger of cybersecurity breaches affecting the assets and the trading system, insolvency causing liquidity freezes in both accounts and execution systems, and credit exposure to the same counterparty across different business lines.

Could the CLARITY Act Failure Increase Systemic Risk?

The failure of the act on its own most likely does not pose a significant systemic risk to the crypto economy, as many regulatory and internal controls are applied to limit exposure to any single crypto business. Nonetheless, Belshe argues that the absence of regulatory control and the tendency toward the same institutional structures will increase the likelihood of a large-scale default if one such crypto-business fails severely.

FAQ

What Happened to the CLARITY Act?

On September 15, 2026, the Senate voted to invoke cloture to fail, which did not receive the 60% required votes (49-50).

Is the CLARITY Act Dead?

The bill is not dead, as there is still the possibility for further Congressional hearings to discuss the issues raised in the bill, vote again on cloture to proceed to the floor, or reintroduce a revised version of the law.

Why Does the CLARITY Act Require 60 Votes in the Senate?

The Senate voted on the motion for cloture, not the law itself. To end a reconciliation filibuster, the bill needed the support of three-fifths of the Senate.

Why Is Mike Belshe Warning About the CLARITY Act Failure?

Mike Belshe, BitGo’s CEO, warns that crypto one-stop shops, which offer multiple services at once, create concentrated exchange, brokerage, custodianship, and settlement risks. Their absence may create systemic risks, and the best way to mitigate them is to impose stricter market-structure regulations.

What Is a Crypto One–Stop Shop?

A crypto one-stop shop refers to a crypto business that integrates multiple services, usually blockchain-based, into one platform. The services can include trading, brokerage, custody, lending, settlement, and derivatives.

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