The crypto sector remains under intense financial and regulatory scrutiny. The U.S. House of Representatives passed the Digital Asset Market Clarity Act in July 2025, a comprehensive market-structure bill that would clarify SEC/CFTC jurisdiction over digital assets and impose custody and customer-asset protections that are relevant in bankruptcy and insolvency scenarios. The CLARITY Act addresses issues that directly affect bankruptcy and insolvency proceedings involving digital asset firms, intending to function as an amendment to existing law to provide clarity for the crypto industry.
This legislative effort is significant for bankruptcy practitioners because it attempts to establish clear consumer protection measures. If enacted, The CLARITY Act would require qualified custodians to segregate customer wallets using multi-factor key management and annual SOC-1/SOC-2 audits. This mandate for segregation of customer assets from the firm’s own corporate assets is a critical consumer protection measure, designed to ensure that customer funds are not treated as the firm’s property in bankruptcy proceedings. This seeks to reduce the volume of disputes over whether customer assets are part of the bankruptcy estate, a major flashpoint in cases such as FTX and Celsius.
Furthermore, discussions surrounding comprehensive digital asset regulation include related stablecoin measures. For instance, recently enacted legislation such as the GENIUS Act now gives payment stablecoin holders first-priority claims over certain reserve assets in an issuer’s insolvency, ahead of other creditors, further reinforcing consumer protections in the digital asset space.
While preference and fraudulent transfer actions will remain active battlegrounds, clearer custodial rules and specialized bankruptcy provisions are expected to prevent some of the chaos seen in earlier crypto insolvencies. The CLARITY Act is a strong basis for a long-needed update to federal securities and commodities laws, moving away from the regulatory lack of clarity that has taken over the industry.
Creditors, investors, and service providers in the digital asset space must adapt quickly to these evolving standards. Over the next few years, we expect test cases and new litigation as courts apply the GENIUS Act’s bankruptcy amendments in stablecoin issuer failures and, if enacted, interpret CLARITY’s customer-asset protections.
THCA represents clients in cryptocurrency-related insolvencies and litigation, from preference actions to cross-border asset recovery.
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