The CLARITY Act Is Moving Again in the Senate. Here's What Passage Would Change for Coinbase and Robinhood.

The U.S. House of Representatives passed the CLARITY Act, which aims to establish a clear federal framework for regulating digital assets, last July. But since then, it's been stalled in the Senate due to conflicting opinions regarding stablecoin yields, public disclosures of crypto holdings, and other controversial issues.

Senators Thom Tillis and Ruben Gallego are trying to revise the act in a bipartisan push so it can be voted on before the Senate's summer break starts on Aug. 8, but it could be tough to meet that deadline. That means a final vote can't happen until after the recess ends in mid-September. Let's see what that delay -- and potential passage -- might mean for Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD), which both favor clearer regulations for the crypto market.

Image source: Getty Images.

Why do Coinbase and Robinhood support the CLARITY Act?

Coinbase and Robinhood support establishing clearer federal rules for cryptocurrencies and other tokenized assets because such rules would eliminate the risk of abrupt regulatory changes and make them more appealing to retail and institutional investors. Those clearer rules would also make it easier for both companies to launch new digital assets.

But that support is conditional. Both companies want the CLARITY Act to allow investors to earn yields on their "staked" (locked up) tokens. Many banks oppose those features, which they consider a threat to conventional interest-bearing cash deposits. A full ban on those yields would likely affect Coinbase more than Robinhood, since the former generated nearly a fifth of its revenue last year from stablecoins -- which are pegged to the U.S. dollar and often pay higher staking yields than CDs.

Coinbase also wants most of the crypto market to be overseen by the Commodity Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC). That split would separate cryptocurrencies from stocks and other securities, classify most tokens as commodities, and protect the market from the SEC's notices and lawsuits. Robinhood favors smoother cooperation between the CFTC and the SEC to regulate all digital assets.

Which company would benefit more from the CLARITY Act?

If the CLARITY Act passes with the approval of stablecoin yields and a shift of most regulatory responsibilities from the SEC to the CFTC, Coinbase could attract more investors as a long-term play on the crypto market. However, fears of interest rate hikes and other macro headwinds -- which are chilling the crypto market -- could dampen that enthusiasm.

Robinhood, which popularized commission-free trading for a new generation of retail investors, is a more diversified play on the stock, options, and crypto trading markets. It's also gradually expanding and evolving into a digital bank with checking, savings, and credit card accounts. While the passage of the CLARITY Act would generate tailwinds for its crypto business and its efforts to tokenize other assets, it probably wouldn't attract as many bulls as Coinbase.

Which stock is a better buy right now?

Shares of Coinbase and Robinhood have declined 29% and 23%, respectively, this year. Analysts expect Robinhood to grow at a more consistent rate than Coinbase if the macro environment stabilizes, but its stock also looks pricier relative to its near-term growth.

Data source: Marketscreener.

However, I'd still rather buy Robinhood over Coinbase in this market. Robinhood's scale, diversification, and steadier growth make it a safer long-term investment than Coinbase, which is still tightly tethered to the crypto market and faces a growing number of competitors. The passage of the CLARITY Act with favorable conditions might temporarily lift Coinbase's stock, but it will struggle to maintain that momentum unless a new crypto summer begins.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.