A small and little-recognized provision in Congress’s bill to create a market structure and regulatory regime for the crypto and digital asset markets could have profound impacts on private fund managers and investment management firms that operate in those areas.
Background
On May 29, 2025, the U.S. House of Representatives (the House) introduced H.R. 3633, the Digital Asset Market Clarity Act of 2025 (the CLARITY Act).1 The CLARITY Act would establish a regulatory framework for digital assets other than stablecoins (referred to as digital commodities) and divide regulatory jurisdiction between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) based on the functional activity and decentralization of a given digital commodity and the blockchain upon which it operates.
The CLARITY Act would also establish registration categories for digital commodity exchanges, brokers, and dealers, and create a tailored set of standards for new issuances of digital assets.
The bill passed the House (with 78 Democratic votes) on July 17, 2025 and is set to be reviewed by the Senate after Congress’s August recess.
Amendments to the Definitions of Commodity Pool Operator and Commodity Trading Advisor
One aspect of the current version of the CLARITY Act that has received little attention is its amendment to the definitions of commodity pool operator (CPO) and commodity trading advisor (CTA), in each case to include entities that trade in or advise with respect to digital commodities.2 If signed into law in its current form, this could require a significant number of private fund managers and investment advisers to register with the CFTC as CPOs and/or CTAs.
Currently, and generally speaking, a CPO is a person or entity that solicits investments for a “commodity pool,"3 which is a collective investment vehicle that engages in any futures, options, or swaps.4 A CTA, in turn, is a person or entity that advises others as to the value or advisability of trading in futures, options, or swaps.5
Section 103 of the CLARITY Act would amend the definitions of a commodity pool, CPO, and CTA, in each case to add “digital commodity” to the list of products that trigger qualification under those definitions. As a result, a commodity pool would include a collective investment vehicle that engages in digital commodity transactions; a CPO would include the managers of such commodity pools; and a CTA would include persons or entities that advise clients as to investing in digital commodities.
It is important to note that the definition of a “digital commodity” is not limited to derivatives or other financial instruments. Rather, a “digital commodity” would mean “a digital asset that is intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system.”6 This definition is purposefully intended to capture cash-market transactions involving most digital assets. Moreover, unlike certain provisions of the bill (e.g., the registration requirements applicable to digital commodity brokers and digital commodity dealers), the definition of “digital commodity” itself is not limited to transactions involving retail participants or clients. By its terms, it therefore also includes transactions between institutional counterparties.
The CLARITY Act provides certain exceptions from categorization as a CPO or CTA and the associated registration requirements. However, these exceptions may be of minimal consequence to most of the investment management industry.
For example, the amended definition of a CPO (but not a CTA) would exclude a person or entity transacting in digital commodities for the purpose of acting as a digital commodity custodian; establishing, maintaining, or managing inventory or payment instruments for commercial purposes; or maintaining or supporting the operation of, or validating transactions on, a blockchain system.7 This would not, however, exclude managers of funds that trade in digital assets for investment purposes.
Additionally, the definition of “digital commodity” in Section 103 excludes a digital asset that represents or is the functional equivalent of a commodity pool.8 As a result, an entity issuing digital assets that represent an interest in a pooled investment vehicle would not qualify as a commodity pool (or a CPO). However, this exemption would not extend to managers of traditional funds that trade in digital commodities, who would still be required to register as CPOs (unless another exemption applies).
Finally, Section 408 of the CLARITY Act would expand an existing exception from CTA registration requirements in Section 4m(3)(C) of the Commodity Exchange Act to also exclude from registration certain CPOs and CTAs that are engaged in the digital commodity markets.9 However, the net effect of this amendment would be to exclude from registration entities: (1) who are registered investment advisers; (2) who do not primarily act as a CPO or a CTA; and (3) whose business does not primarily involve acting as a CPO or a CTA with respect to digital commodities (or other “commodity interests”). This would not, therefore, exclude from registration entities that are not registered investment advisers, nor entities whose investment activities focus on digital commodities.
Impact of registering as a CPO or CTA
If private fund managers and investment advisers engaged in digital commodity-related business are required to register as CPOs or CTAs, it could significantly impact their business. The regulatory requirements applicable to CPOs and CTAs differ somewhat, but generally require the registrant to: (1) become a member of the National Futures Association (NFA) and submit to periodic examinations by the NFA; (2) submit detailed reports to their investors or clients, as well as to the NFA; (3) provide prescriptive disclosures to investors or clients; and (4) adopt a wide range of compliance policies and procedures. Additionally, all salespersons (and their supervisors) at a CPO or CTA must submit fingerprints, complete a background check, and pass a proficiency examination.
Current CFTC regulations provide certain exemptions from the requirement to register as a CPO or a CTA, but these are primarily useful for entities that engage in only a limited amount of derivatives transactions. These exemptions may therefore be of limited use to fund managers or investment advisers whose business focuses primarily or entirely on digital assets. Additionally, many fund managers and investment advisers who currently rely on these exemptions – because they engage only in limited derivatives trading (e.g., for hedging purposes) – may be unable to do so going forward.
Conclusion
The CLARITY Act’s proposed amendments to the definitions of CPO and CTA would represent a significant shift in the regulatory landscape for private fund managers and investment advisers active in the digital asset space. By broadening the scope of instruments that currently define the bounds of CPO and CTA registration requirements, the bill could subject a wide array of market participants to new and potentially burdensome compliance obligations.
Given the rapid evolution of the digital asset market and the increasing interest from institutional investors, these impacts could be far-reaching. Fund managers and advisers should closely monitor the bill’s progress and begin assessing how these changes might affect their operations, compliance infrastructure, and overall business strategy. The coming months will be critical in determining whether the bill’s final form strikes the right balance between regulatory oversight and fostering innovation in the digital asset ecosystem.
- Digital Asset Market Clarity Act of 2025, H.R. 3633, 119th Cong. (2025).
- See id. (to be codified at 7 U.S.C. §§ 1a(10), 1a(11) and 1a(12)).
- See 7 U.S.C. § 1a(11).
- See 7 U.S.C. § 1a(10).
- See 7 U.S.C. § 1a(12).
- CLARITY Act, Section 103 (to be codified at 7 U.S.C. § 1a(16)(F)).
- See id. (to be codified at 7 U.S.C. § 1a(11)).
- See id. (to be codified at 7 U.S.C. § 1a(16)(F)).
- See id. (to be codified at 7 U.S.C. § 4m(3)(C)).
Client Alert 2025-198
