BitGo CEO: Clarity Act Failure Puts Capital Markets at Systemic Risk
BitGo CEO Mike Belshe has issued one of the starkest warnings yet about the consequences of the U.S. Senate's failure to advance the Clarity Act. Speaking at Korea Blockchain Week 2026, Belshe argued that without a legislative framework separating exchange, brokerage, and custody functions for digital assets, American capital markets now face a concentration of risk that could, in a worst-case scenario, exceed the systemic damage of the 2008 Lehman Brothers collapse. For accounting firms, CFOs, and auditors managing digital asset exposures, the warning is not abstract: the absence of a clear market-structure law has direct implications for how custodial arrangements are assessed, how counterparty credit risk is disclosed, and how stablecoin accounting positions are justified to auditors and boards.
What the Clarity Act Was Meant to Do
The Clarity Act sought to establish a statutory framework governing how digital asset businesses could combine or separate their functions. The bill had the support of BitGo and much of the institutional crypto industry, but it failed to secure the 60 votes needed to advance in the Senate. That procedural failure left the U.S. with no federal law clearly delineating which activities a single digital asset firm can bundle together.
The structural gap the bill would have filled
Traditional financial markets impose hard boundaries between functions. An exchange matches buyers and sellers. A broker-dealer intermediates those trades on a client's behalf. A custodian holds the resulting assets, ringfenced from the other two. Decades of securities law, reinforced after the 2008 crisis, exist precisely to prevent a single firm from controlling all three legs of that chain simultaneously. The Clarity Act would have extended equivalent logic to digital assets. Without it, Belshe's argument is that no such statutory guardrail exists.
The "One-Stop-Shop" Risk Belshe Is Describing
Belshe's concern centres on a specific market trend: major crypto firms are accumulating regulatory licences that let them offer trading, brokerage, and custody under one roof. He pointed to one unnamed firm that holds a derivatives clearing organisation (DCO) licence on top of an existing futures commission merchant (FCM) licence and operates an exchange. That combination, he argued, is the structural equivalent of allowing a single entity to be the New York Stock Exchange and simultaneously hold every client's securities in its own vault.
Custody risk: bearer assets and the private key problem
Belshe was pointed on why combining exchange and custody is particularly dangerous for crypto. Unlike equities or bonds, digital assets are bearer instruments. Whoever controls the private key controls the asset, with no registry, no transfer agent, and no recourse if the key is lost or stolen. "Exchanges have never held custody, never, of anything," he said. "And they certainly didn't hold custody of the world's most dangerous asset, the bearer asset, the one where if you lose the private key, you lose money." A custody failure at a firm that is simultaneously the dominant exchange, Belshe argued, would not be a firm-level failure: "the entire market goes down."
Counterparty credit risk: why Lehman is the reference point
The second risk Belshe identified is counterparty credit risk. Lehman Brothers failed in 2008 partly because it could not accurately see its own exposure across the instruments it was trading, brokering, and financing. The financial system survived that failure, Belshe noted, because Lehman was not also the exchange itself. "Imagine if that had been the New York Stock Exchange offering those services and the whole New York Stock Exchange went down," he said. "As devastating as the 2008 crisis was, we survived it. But if it had been New York's stock exchange going down, I don't know if we would have." The analogy is not perfect, but the structural logic it captures is precise: when the central market infrastructure and the credit risk of a single counterparty are fused into one entity, there is no clean resolution path if that entity fails.
Stablecoin Accounting Implications for Firms and CFOs
Belshe's warning lands at a moment when stablecoin positions are growing rapidly on corporate balance sheets and in institutional portfolios. The absence of a market-structure law has real accounting and audit consequences that finance teams need to address now, regardless of when or whether Congress revisits the Clarity Act.
Custodial arrangement disclosures
Under both US GAAP and IFRS, the classification and disclosure of a digital asset position depends partly on the nature of the custodial arrangement. If a firm holds stablecoins or other digital assets through a platform that simultaneously operates as an exchange and a custodian, the question of whether those assets should be treated as the firm's own assets or as an unsecured claim against the platform becomes material. ASC 820 fair value measurements and any forthcoming FASB guidance on stablecoin classification as cash equivalents will both require auditors to understand the legal enforceability of the custody relationship. A one-stop-shop structure, where custody is bundled with exchange operations and there is no statutory segregation requirement, makes that enforceability harder to confirm.
Counterparty credit risk and the balance sheet
For CFOs, the Lehman comparison should prompt a review of counterparty concentration. If a material portion of a firm's digital asset holdings sits with a single entity that also operates as its trading venue, the firm's credit exposure to that counterparty is effectively the sum of its trading positions plus its custodied assets. That aggregated exposure may need to be disclosed in financial statements as a concentration risk. Audit committees asking about digital asset risk should expect management to quantify this, not just describe it qualitatively. The FASB's proposed stablecoin cash-equivalent classification, currently in process, will likely sharpen auditor scrutiny of exactly these custodial arrangements.
Stablecoin accounting software and record integrity
Firms using digital asset accounting software to record stablecoin positions need to ensure that the data feed distinguishes between assets held in a segregated custody wallet and assets held on an exchange or in a commingled account. The two have different risk profiles and, increasingly, different accounting treatments. A ledger that records both as equivalent cash-like positions will understate counterparty exposure. Finance teams should audit their chart-of-accounts mapping against the actual custodial structure before year-end.
What BitGo's Position Signals for the Broader Market
Belshe was clear that BitGo itself can operate without the Clarity Act, drawing on 13 years of operating as a standalone custodian. His concern is structural and systemic, not competitive. He noted that traditional banks and financial institutions, which he views as BitGo's strongest potential competitors in the custody space, are moving more cautiously into digital assets partly because of concern about a repeat of the regulatory pressure sometimes described as Operation Chokepoint 2.0. That caution, paradoxically, leaves the field to crypto-native firms that may be accumulating the very multi-function licences Belshe is warning about.
The political dimension
Belshe was direct about the political cost of inaction. "Without solving clarity for really relatively small and petty political differences, the legislature decided to put the American capital markets at risk," he said. That framing matters for how firms should assess legislative risk in their internal scenario planning. The Clarity Act's failure was not a technical regulatory decision; it was a political one. That means its eventual revival or replacement depends on political conditions that are difficult to model with precision.
Stablecoins, AI Agents, and the Longer View
On the sidelines of Korea Blockchain Week, Belshe also addressed the debate about whether stablecoins can serve as a native currency for AI agents. He was responding to the argument, made by Maelstrom CIO Arthur Hayes at the same event, that stablecoins and other digital currencies are unsuitable for AI agent payments because they do not convert directly into compute resources. Belshe did not dismiss the point entirely but suggested the timeline for AI agents operating outside human-denominated currency systems is longer than often assumed. He expects humans to retain control of AI systems for far longer than some forecasts suggest, and that agents working on behalf of humans will interface with the same dollar-based or currency-based systems humans use today. For accounting and finance teams, the near-term takeaway is straightforward: stablecoin accounting remains a dollar-denominated problem, and the frameworks being built now will govern AI-adjacent payments for years.
Practical Steps for Accounting Firms and CFOs
The Clarity Act may or may not return to the Senate floor. In the meantime, firms with digital asset exposures should take several concrete steps informed by the risks Belshe has identified.
Review custodial agreements now
Obtain and review the legal agreements governing every digital asset custodial arrangement. Identify whether assets are held in segregated accounts in the firm's name or in omnibus accounts. Confirm whether the custodian also operates as a trading venue or broker for the same assets. Document the findings for the audit file.
Map counterparty concentration
Aggregate all digital asset exposures by counterparty, including exchange balances, custodied assets, and any unsettled trades. If a single counterparty accounts for a material share of total digital asset exposure, assess whether that concentration requires disclosure in the notes to the financial statements.
Update risk disclosures
Risk factor disclosures in financial statements and regulatory filings should reflect the absence of a federal market-structure law for digital assets. The Clarity Act's failure is a material legislative development that changes the risk environment for firms with significant digital asset operations. Generic "crypto is risky" boilerplate is unlikely to satisfy auditors or the SEC's disclosure expectations.
Monitor legislative developments
Assign responsibility within the finance or compliance function for tracking Clarity Act developments and any successor legislation. Changes to the legislative landscape will affect how custodial arrangements are structured and how the accounting for those arrangements is supported.
Source: The Block
Frequently Asked Questions
What was the Clarity Act and why did it fail?
The Clarity Act was a piece of U.S. federal legislation intended to establish clear rules separating the exchange, brokerage, and custody functions for digital asset firms. It failed because it could not secure the 60 Senate votes required to advance past a procedural threshold, leaving the U.S. without a statutory market-structure framework for digital assets.
Why does combining exchange, brokerage, and custody in one firm increase systemic risk?
Traditional financial regulation separates these functions to prevent a single firm's failure from cascading across the entire market. When one entity controls the trading venue, intermediates client orders, and holds client assets, a failure of that entity removes market infrastructure, client funds, and credit relationships simultaneously. For digital assets, the bearer-asset nature of crypto amplifies this: there is no registry or transfer agent to reconstruct ownership if the custodian fails.
How should CFOs account for digital assets held at a platform that also operates as an exchange?
The key question is whether the firm holds a direct property right in the assets or an unsecured contractual claim against the platform. If assets are held in a commingled omnibus account without legal segregation, they may not qualify as the firm's own assets under US GAAP or IFRS. Finance teams should obtain legal advice on the structure of the arrangement and reflect the appropriate accounting treatment, which may differ from a segregated custody arrangement.
What does the Clarity Act's failure mean for stablecoin accounting specifically?
FASB's ongoing work on classifying certain stablecoins as cash equivalents assumes a degree of certainty about the legal enforceability of the redemption right and the segregation of reserve assets. Without a market-structure law requiring custodial segregation, the legal enforceability of a stablecoin held on a multi-function platform is harder to confirm. Auditors are likely to ask for more documentation supporting cash-equivalent classification where the stablecoin is held on a combined exchange and custody platform.
Does this affect firms that hold stablecoins only for treasury or payment purposes?
Yes. Even firms that hold stablecoins solely for operational purposes, such as cross-border payments or treasury management, need to assess where those stablecoins are held. If they are held on a platform that also operates as a trading venue without statutory segregation requirements, the firm has an undisclosed concentration of counterparty credit risk that should be evaluated for disclosure purposes.