The Clarity Act cryptocurrency regulation bill cleared a key early hurdle after advancing out of the Senate Banking Committee last week, but the legislation still faces several obstacles that could endanger its success on the Senate floor and beyond.

The Clarity Act, which aims to provide guidelines for financial regulators on how to regulate the crypto industry, cleared the Senate panel Thursday with the support of all GOP members and two Democrats.

Despite the bipartisan nature of the vote, the lack of support among several crypto-friendly Democrats, as well as outstanding concerns from influential outside groups, could prove difficult for the bill to overcome.

Here are four issues to watch in the coming weeks:

Democrats remain on the fence

The Clarity Act received support from two Democrats on the Senate Banking Committee after last-minute maneuvering to secure a bipartisan vote, but the measure will need at least eight Democratic votes on the floor.

While Sens. Ruben Gallego (D-Ariz.) and Angela Alsobrooks (D-Md.) voted for the bill at Thursday’s markup, both warned they could pull their support down the line.

“I want to be abundantly clear, my vote today is a vote to keep working in good faith,” Alsobrooks said. “It does not mean that I’ll be voting for the passage of the Clarity Act on the floor, because we still have so much work to do.”

They are part of a larger group of about a dozen crypto-friendly Democrats who have been negotiating with Republicans on crypto legislation since last year.

Several of these Democrats who sit on the committee — Sens. Mark Warner (Va.), Catherine Cortez Masto (Nev.), Raphael Warnock (Ga.), Andy Kim (N.J.) and Lisa Blunt Rochester (Del.) — declined to support the bill.

“After the GENIUS Act, for me, I can’t take a handshake,” Blunt Rochester said Thursday. “I want the work to happen in committee.”

The GENIUS Act, which passed Congress last July, created a regulatory framework for one type of crypto known as stablecoins. Stablecoins are digital tokens that are tied to a more stable asset, like the U.S. dollar.

Blunt Rochester supported the GENIUS Act in the Senate Banking Committee last year but said she wanted to see further changes to the bill. She ultimately did not vote for the measure on the Senate floor.

A key concern for Democrats with the Clarity Act is the lack of a provision placing limits on how government officials can invest or partake in the industry. This has become a priority in the wake of President Trump and his family’s wide-ranging involvement in crypto, from stablecoins to meme coins to bitcoin mining.

“Perhaps the toughest issue of all, we have come close but have not finished an agreement on ethics guardrails for elected officials, all elected officials,” Gallego said Thursday.

“We need real, enforceable standards, what is and is not acceptable for someone who holds the public’s trust and shouldn’t be able to profit off an industry that they enforce or regulate,” he continued.

Law enforcement warns against ‘blanket exemption’ for developers

Another major hurdle for the Clarity Act is opposition from law enforcement groups to a provision providing protections to software developers.

The provision declares that developers who do not control customer funds are not considered money transmitters. Law enforcement groups have argued this is an overly broad exemption and would make it hard for them to track criminal activity on crypto platforms.

Senate Judiciary Committee Chair Chuck Grassley (R-Iowa), who initially voiced concerns to Senate Banking leaders in January, reached an agreement with Sen. Cynthia Lummis (R-Wyo.) to tweak the bill’s language last week. But this has done little to reduce the pushback.

“Our concern is that Section 604 would severely impede the ability of law enforcement and prosecutors to investigate, trace, and prosecute criminal activity involving cryptocurrency and other digital assets,” the National District Attorneys’ Association wrote in a letter last week.

“If passed, this blanket exemption would be problematic for future investigations and could cause a multitude of unintended consequences that could bar law enforcement from going after bad actors in the digital asset space,” they added.

They were joined by the National Sheriffs’ Association, National Association of Assistant U.S. Attorneys and other groups in opposing the language ahead of Thursday’s markup.

This has been a key concern for Cortez Masto, who is considered one of the Democrats in play on the legislation.

“It’s clear we need to pass market structure legislation, and I’ve worked for months with colleagues on both sides of the aisle to negotiate a bill that provides clear rules of the road for a growing industry,” she said in a statement following the Senate Banking vote.

“But the current version of the CLARITY Act undermines law enforcement’s ability to trace illicit finance and recover victims’ money, while at the same time creating a more challenging environment to prosecute criminals for knowingly transmitting illicit funds,” she continued.

Banks push back on stablecoin rewards

The banking industry’s opposition to a provision on stablecoin rewards could also complicate the bill’s path forward.

The issue stems from the GENIUS Act, which included a section barring stablecoin issuers from paying yield or interest to customers solely for holding the tokens. The banks have argued this left open a loophole allowing third parties to offer rewards to stablecoin holders and have pushed for additional restrictions in the Clarity Act.

Following months of talks, Alsobrooks and Sen. Thom Tillis (R-N.C.) unveiled an updated version of the draft text in early May. While the crypto industry was largely on board with the new language, the banking industry suggested it fell short — a sentiment it reiterated after the Clarity Act advanced out of the Senate Banking Committee last week.

“Without the necessary guardrails, stablecoin offerings are expected to draw away bank deposits and threaten local lending and economic activity across the country,” a group of six banking trade groups said in a joint statement.

“In that spirit, we will continue to work with senators in good faith to address this issue and improve the bill and its chances on the Senate floor,” they continued.

Lengthy legislative process runs up against Senate calendar

As senators grapple with the remaining policy disputes in the bill, they are facing yet another complication in the shrinking legislative calendar.

Lawmakers have less time to get bills across the finish line this year due to the midterm elections, which cut into Congress’ working days and limit the prospect of bipartisan legislation.

The Clarity Act is also a complex bill. The measure that advanced out of the Senate Banking Committee represents only one portion of the final bill. The other half passed out of the Senate Agriculture Committee in January and now must be combined with its counterpart before heading to the floor.

If the legislation clears the Senate, it will also need to be reconciled with the House version that passed last July.

“In order for the CLARITY Act to pass in 2026, it probably needs to get through the Senate by the end of July – preferably in June,” Brian Gardner, chief Washington policy strategist at the wealth management and investment banking firm Stifel, wrote in a note Thursday.

“If the Senate fails to pass the bill before the August recess, the bill’s prospects would deteriorate materially,” he added.