Defining the Regulatory Guidelines: The U.S. Approach to Crypto Market Governance

Recently, on January 13, 2026, the 119th U.S. Congress introduced the historic Digital Asset Market Clarity Act of 2025 (H.R. 3633), also known as the CLARITY Act of 2025, to create a thorough regulatory framework for digital assets in the country. The bill, which is sponsored by Representative J. French Hill, aims to specify the duties of important regulatory bodies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), as well as how digital commodities or digital assets that derive value from blockchain technology, should be regulated across federal financial markets. With bipartisan support, the bill cleared the House of Representatives and was then forwarded to the Senate for additional review.

LEGAL BACKGROUND AND REGULATORY AMBIGUITIES THE CLARITY ACT SEEKS TO ADDRESS

1. Ambiguity in Digital Asset Classification: The absence of regulatory clarity on the classification of digital assets as securities, commodities, or a separate asset class has been one of the most enduring issues in U.S. crypto law. Regulators have largely relied on pre-existing laws, especially securities law parameters, for evaluating cryptocurrency tokens in the lack of precise statutory definitions. For issuers, exchanges, and investors, this has led to conflicting interpretations and ambiguity.
   By providing clear definitional criteria for “digital commodities,” the CLARITY Act seeks to address this fundamental ambiguity, removing the need for case-by-case enforcement and providing market players with reliable guidelines for compliance.
2. Jurisdictional Conflict Between the SEC and the CFTC: The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have had overlapping and contentious legal jurisdiction, which led to another significant misunderstanding. Lawmakers and industry players contend that the CFTC is better suited to manage current cryptocurrency markets and digital commodity trading, despite the SEC’s broad authority over digital assets, which it defines as securities.
   By giving the CFTC primary management of spot digital commodity markets and maintaining the SEC’s jurisdiction over assets and operations that more closely resemble traditional securities markets, the CLARITY Act seeks to settle this conflict.
3. Regulatory Uncertainty for Crypto Market Intermediaries: For many years, there has been confusion surrounding registration, compliance, and operating responsibilities for cryptocurrency exchanges, brokers, custodians, and dealers. Intermediaries have had difficulty figuring out which regulatory regime applies to their operations in the absence of a clear statutory regime. By providing clear registration, disclosure, record-keeping, custody, and trade-monitoring requirements for digital commodities intermediaries, the CLARITY Act closes this gap, bringing them into a cohesive governing structure and lowering compliance uncertainty.
4. Stablecoin Treatment and Financial Stability Concerns: Particularly with regard to consumer protection, financial stability, and rivalry with established banking systems, stablecoins have brought up certain regulatory issues. Legislators and regulators have argued over whether interest-bearing stablecoins provide systemic hazards and whether they should be handled similarly to bank deposits, securities, or payment instruments.
   In an effort to alleviate such fears, the CLARITY Act limits interest paid only for owning stablecoins, permits incentives related to transactional or functional use, and imposes stricter disclosure standards.
5. Shift from Regulation by Enforcement to Legislative Clarity: A central structural problem in U.S. crypto regulation has been the reliance on “regulation by enforcement” rather than clear legislative rules. In the absence of a comprehensive statutory framework for digital assets, regulators—particularly the SEC—have often sought to define the boundaries of lawful conduct through enforcement actions and litigation. This approach has meant that market participants frequently learn about regulatory expectations only after enforcement actions are initiated, rather than through prospective rules that outline permissible conduct in advance. As a result, similar activities have been treated differently over time, and compliance has depended heavily on subjective interpretations of existing laws that were not designed for decentralized, blockchain-based systems. By substituting clear statutory definitions, jurisdictional limits, and compliance requirements specific to digital asset markets for enforcement-driven governance, the CLARITY Act aims to buck this trend. This will enable actors to organise their operations in compliance with the law prior to entering the market.

KEY PROVISIONS OF THE U.S. DIGITAL ASSET MARKET STRUCTURE BILL: AN INDIAN AND COMPARATIVE PERSPECTIVE

1. Asset Classification as the Core Regulatory Tool: The U.S. Bill establishes a statutory classification of digital assets as the basis for regulation, differentiating between securities, digital commodities, and ancillary assets. In contrast, India does not have a formal system for classifying assets. For tax purposes, cryptocurrency assets in India are mainly classified as “Virtual Digital Assets” (VDAs) under the Income Tax Act; however, their regulatory status under securities, commodities, or payments law is unclear.

2. Functional Test Over Technology-Based Regulation: Instead of using technology, the Bill classifies cryptocurrency assets according to their economic purpose and decentralised structure. In the Indian context, learning from this model, India may be able to more successfully differentiate between payment tokens, investment tokens, and utility tokens by applying a test of functionality.

3. Clear Allocation of Regulatory Jurisdiction: Authority has been clearly divided by the Bill:

• SEC – Investment-type crypto assets: If a crypto token is sold mainly as an investment, where buyers expect profits because a company or team is building and managing the project, it is regulated by the SEC—much like shares in a company. For example, a newly launched token sold to raise funds for a startup-led blockchain project would fall under SEC oversight.
• CFTC – Tradeable crypto assets (digital commodities):
  If a crypto asset is widely traded and decentralised, and its value depends more on market supply and demand than on a single company’s efforts, it is regulated by the CFTC. For example, assets like Bitcoin or Ethereum, which function more like commodities such as gold, fall under CFTC supervision.

India’s position: The Ministry of Finance, RBI, and SEBI could collide, and India presently faces institutional ambiguity. Statutory jurisdictional clarity helps lessen governmental conflict and enforcement inconsistencies as illustrated by the U.S. model.

4. Stablecoins as a Distinct Regulatory Category: The Bill acknowledges stablecoins’ role in financial infrastructure and payments as a distinct class of digital assets. Indian stance: While supporting the e₹ (CBDC), the RBI has continuously voiced concerns over private stablecoins, seeing them as barriers to monetary sovereignty. The American strategy proposes an alternative: regulation as opposed to outright resistance.

5. Emphasis on Disclosure and Consumer Protection: Enhanced disclosure requirements are central to the Bill’s stablecoin framework.
   Comparative gap: India’s crypto policy relies heavily on taxation and deterrence (30% tax, 1% TDS) rather than disclosure-based investor protection. The U.S. model reflects a shift toward informed consumer choice rather than discouragement.

CONCLUSION

The U.S. Bill is a substantial step towards organised governance of digital assets, even though it does not completely remove all regulatory obstacles in the cryptocurrency markets. The Bill offers a helpful comparison model for striking a balance between innovation, consumer protection, and financial stability for India, which is yet to adopt a comprehensive crypto statute.