Bernstein Says Markets May Be Underestimating Clarity Act Progress

Bernstein analysts said Monday the Clarity Act now appears more likely to make headway than markets anticipated last week, following Republican concessions on issues raised by Democrats ahead of Tuesday’s Senate procedure.

The research and brokerage firm’s analysts, led by Gautam Chhugani, said markets have not fully factored in the possibility of a favorable legislative surprise. The probability attached to the outcome on Kalshi has risen back above 30%.

The Senate will decide Tuesday whether to overcome the procedural barrier needed to take up the measure. Clearing that stage requires 60 votes. Republicans hold 53 Senate seats. Even with full Republican support, Democrats or independents must provide additional votes to reach the 60-vote threshold.

That threshold may be within reach. Bloomberg previously reported that seven to 10 Democrats appeared interested in ultimately supporting the bill.

Republican Changes Seek to Resolve Democratic Objections

Late Sunday, Senate Republicans published what they characterized as the completed version of the Clarity Act, saying the text reflected 126 significant changes made in response to Democratic requests.

Ethics provisions are among the areas where lawmakers made concessions. President Donald Trump accepted most elements of a bipartisan ethics proposal, including giving state attorneys general an enforcement role.

The framework also includes conditions involving the disposal of crypto assets or their placement in a blind trust. Taken together, Bernstein said the ethics offer is likely the strongest available and may be sufficient to bring several Democrats behind the procedural measure. That would keep negotiations active ahead of the legislation’s ultimate consideration. 

In addition, Bernstein said some Senate Democrats may be mindful of being portrayed as hostile to crypto with the midterms approaching. The firm noted that the crypto lobby has supported candidates from both major parties.

Stablecoin Provisions Provide Guardrails for Banks

The revised measure also seeks to ease banking-sector concerns by allowing the Treasury secretary to suspend stablecoin rewards for a limited period if their use causes significant deposit outflows at community banks.

Bernstein said the provision gives banks safeguards against risks tied to stablecoin returns and the possibility of deposits leaving during banking-sector distress.

If the measure does not become law, third-party platforms could continue offering customers the complete return available on stablecoin holdings that are not otherwise in use.

For that reason, Bernstein characterized defeat of the Clarity Act as the most unfavorable result, including for banking interests.

Fed Announcement Adds Another Major Market Event

Tuesday’s Senate action will come a day before Fed officials announce their next move on rates, giving markets two major events to digest in quick succession.

Bernstein said the combination of an unsuccessful legislative outcome and a hawkish Fed could cause a substantial market decline. The analysts also described existing market positioning as tilted toward bearish expectations.

The outcomes could produce sizable price fluctuations, upward or downward, across both cryptocurrencies and publicly traded crypto companies.

Agency Action Could Accelerate Without Legislation

Still, Bernstein has said that even if the legislation fails, U.S. crypto regulation could continue advancing as the SEC and CFTC move ahead with rulemaking under their existing authorities.

The analysts maintained that position Monday, saying greater regulatory activity could help crypto stocks regain ground after an immediate negative reaction.

CFTC Chair Michael Selig has similarly said that regulators may ultimately have to establish the rules if Congress fails to enact the measure.