Crypto Regulation in Transition: Understanding the Legal Landscape Heading Into 2026

Cryptocurrency regulation in the United States is undergoing major changes. For years, there was confusion, overlapping agency roles, and rules made mostly through enforcement. Now, lawmakers are working to create a clearer federal framework for cryptocurrencies, stablecoins, and blockchain services.

Recent laws show a real change is happening. In 2025, Congress passed the GENIUS Act, which set the first national rules for payment stablecoins. Around the same time, the Digital Asset Market Clarity Act, or CLARITY Act, became the primary proposal to regulate the broader crypto market. The CLARITY Act passed the House but is still stuck in the Senate, showing how hard it is to regulate such a fast-changing and diverse industry.

This article covers the current state of U.S. crypto regulation, why progress has been uneven, and what ongoing debates might mean for the future of digital asset policy.

From Enforcement to Legislation: A Changing Regulatory Philosophy

For most of crypto’s history in the U.S., regulation has been reactive instead of proactive. Federal agencies mostly used existing securities and commodities laws, applying them to digital assets through court cases and enforcement actions rather than creating new laws for crypto.

This approach led to confusion in the industry. Companies often did not know if their products were considered securities, commodities, or something else. Investors and institutions were unsure about compliance, and innovation started moving to places with more transparent rules.

Seeing these problems, policymakers began drafting new laws. Their goal is not to reduce oversight, but to replace confusion with clear rules that match how digital assets work.

Stablecoins and the GENIUS Act

A major milestone came in mid-2025 when Congress passed the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act. This law established federal rules for payment stablecoins, digital tokens designed to maintain a stable value relative to traditional currencies.

Key features of the GENIUS Act include:

Mandatory full reserve backing for payment stablecoins
Regular third-party verification of reserves
Oversight by federal banking regulators
Limits on how stablecoins may be marketed or structured
Restrictions preventing issuers from paying interest directly to stablecoin holders

While the law brought essential clarity, it also started new debates. Banks and financial institutions worried that stablecoin rewards might act like unregulated deposits. On the other hand, crypto companies said that rewards from exchanges or partners are different from interest accounts. These disagreements have affected wider discussions about how the market should be structured.

The CLARITY Act and Market Structure Reform

The Digital Asset Market Clarity Act aims to address a long-standing problem in U.S. crypto policy: the lack of clear boundaries among regulators.

In the past, there were arguments about whether cryptocurrencies should be treated as securities by the SEC or as commodities by the CFTC. These different views led to variable enforcement and ongoing legal uncertainty.

The CLARITY Act aims to fix this by establishing a clear classification system and specifying which agency is responsible.

Core Elements of the CLARITY Act

Defined regulatory roles
The bill assigns primary oversight of digital commodities to the CFTC, while preserving SEC authority over digital asset securities.
Introduction of “ancillary assets”
Network tokens that may initially depend on issuer activity but are intended to decentralize over time would be subject to disclosure requirements until certain decentralization thresholds are met.
Federal standards for crypto intermediaries
Exchanges, brokers, and custodians would face uniform rules covering asset segregation, surveillance, compliance, and consumer protections during insolvency.
Safe harbor for software developers
Individuals who write or publish code, or operate validation infrastructure without custody of client funds, would not be regulated as financial intermediaries.
Integration with traditional finance
Banks and credit unions would be permitted to provide crypto custody, issue stablecoins, and use blockchain technology under regulated conditions.
Clarification for NFTs
Non-fungible tokens representing art, collectibles, or access rights would generally fall outside securities regulation.
Innovation sandbox
A joint SEC–CFTC testing environment would allow limited experimentation with blockchain products under regulatory supervision.

Why the CLARITY Act Has Not Yet Passed

Even though both parties are interested, the CLARITY Act has faced problems in the Senate. These delays are not just about scheduling; they show deep disagreements about how crypto should be regulated.

Several factors have contributed to the impasse:

Political divisions

Some lawmakers want strong oversight to protect consumers and prevent financial crime. Others are concerned that rules that are too broad could hurt innovation and push business overseas.

Banking sector resistance

Traditional financial institutions have opposed crypto products that look like deposit accounts, especially stablecoin reward programs. Their influence has led to proposed changes and stronger industry opposition.

Industry fragmentation

The crypto industry is not united. Big platforms and developers worry that the current bill could create new uncertainties or make compliance harder. When major firms pulled their support, it showed how tough it is to make a law that works for everyone.

Expanding scope

The bill now includes many amendments about DeFi rules, surveillance, cybersecurity, and anti-money laundering. As the bill covers more topics, it has become harder for everyone to agree.

The Deeper Issue: One Category, Many Systems

Beyond politics, there is a bigger problem in the regulatory debate: treating all cryptoassets as if they are the same.

This approach made sense early on, but it no longer fits the reality. Digital assets are very different in how they are designed, managed, and the risks they carry.

For example:

Some networks function without issuers, central control, or discretionary monetary policy.
Others rely on identifiable development teams, managed token supply, and intermediated access.

Using the same rules across these different systems can mask important differences and make regulation less effective. Rules about disclosure, governance, and compliance often assume there is someone in charge, but that is not always true for decentralised networks.

DeFi, Surveillance, and Regulatory Trade-Offs

Decentralized finance shows these challenges clearly. Traditional financial rules are based on intermediaries and accounts, but many DeFi protocols use automated smart contracts and rely on collateral instead.

When rules are too strict for U.S. providers, activity often shifts to other locations, such as offshore platforms or decentralized systems that regulators cannot easily control. This does not remove risk; it just moves it.

As a result, regulators face a difficult balance:

Protect users and market integrity
Avoid driving activity into less transparent environments
Ensure rules are enforceable in practice

Recent proposals try to tell the difference between fully decentralized systems and those with some shared or managerial control, but it is still very hard to draw that line.

Additional Regulatory Developments

Changing the market structure is just one part of the bigger picture. Other important changes include:

Tax reporting requirements
New IRS rules require brokers to report digital asset transactions using Form 1099-DA, with expanded cost-basis reporting beginning in 2026.
Anti-money laundering enforcement
Most crypto businesses remain subject to Bank Secrecy Act obligations, including registration, customer verification, and suspicious activity reporting.
State-level action
Some states are tightening oversight independently, introducing stricter licensing requirements and penalties for unregistered crypto operations.

Why Regulatory Clarity Matters

Clear and steady rules are needed for any financial market to grow. In crypto, laws about market structure affect where companies do business, how institutions invest, and how people use digital assets.

Delays in U.S. laws have affected groups differently. Infrastructure providers and decentralized networks have not been hit as hard, but exchanges, DeFi platforms, and token issuers face more uncertainty. Ongoing confusion could slow adoption and send innovation overseas.

Looking Forward

The future of U.S. crypto regulation depends not just on passing new laws, but on how well those laws reflect the many types of digital assets. Good policy needs clear categories, fair rules, and an understanding of how technology changes ideas about control and responsibility.

The CLARITY Act, whether it is changed or replaced, is a key step toward moving from confusion to clear rules. What happens with this law will affect the U.S. crypto market long after 2026, shaping innovation, investment, and the country’s place in the global digital asset world.

In the end, the main challenge is not how fast laws are made, but how well they are designed.