Galaxy Digital’s head of research sounds the alarm: the CLARITY Act could represent the largest expansion of financial surveillance since the Patriot Act.
The CLARITY Act, the long-awaited U.S. digital assets bill, is coming under fire from within the industry itself. Alex Thorn, head of research at Galaxy Digital (NASDAQ: GLXY), issued a warning in a client note dating back to January 2026: the current version of the legislation contains “fine print” elements that could make it the largest expansion of financial surveillance since the USA PATRIOT Act.
At the heart of Thorn’s concerns is the expansion of powers granted to OFAC (Office of Foreign Assets Control), the U.S. Treasury division responsible for managing sanctions. According to an analysis shared by Thorn, OFAC has historically sanctioned 518 Bitcoin addresses, which have cumulatively received 249,814 BTC, sent 239,708 BTC, and currently hold a net balance of approximately 9,306 BTC, worth roughly $707 million. The CLARITY Act, according to Thorn, would significantly extend these powers, providing the Treasury with new tools to intercept illicit assets well beyond the current SDN (Specially Designated Nationals) list.
Thorn also warned that if the CLARITY Act does not clear committee by the end of April 2026, the chances of passage within the year would become “extremely low.” Supporters within the Senate Banking Committee argue the bill is designed to “crack down on illicit finance” and protect software developers, but criticism is mounting.
The bill also introduces so-called “Distributed Ledger Application Layers,” which could create compliance obligations for software applications and force DeFi interfaces to monitor users. Although the text includes a “Keep Your Coins Act” clause prohibiting bans on self-custody, independent analyses flag loopholes that would still allow government intervention in matters of illicit finance.
On the Wall Street front, giants such as JPMorgan Chase and Citadel are actively lobbying the SEC to ensure tokenized assets do not receive preferential treatment over traditional market structures. In a letter to the SEC, Thorn argued that “forcing a new architecture to clone the old one” is not technological neutrality. Thorn contends that a decentralized automated market maker (AMM) should not be classified as an exchange, as it is “autonomous code” and not an organization of people running a market. Liquidity providers (LPs) on AMMs, according to Thorn, are simply traders using their own balance sheets — not dealers serving clients.
Legislative disputes have reportedly narrowed down to two or three core issues, primarily related to stablecoins. The provisional compromise would ban passive “idle yield” on stablecoins — as banks fear deposit outflows — while still allowing activity-based rewards. Critics such as Ryan Adams argue that if banks succeed in stripping out the yield provisions, it will demonstrate that the Senate is prioritizing banking interests over the public interest. Thorn warns that banks and brokers are playing a cynical game: publicly supporting Bitcoin, while using their Washington lobbyists to delay genuine integration that would threaten their control over market structure.
