The recent concessions made by Republicans have increased the likelihood of advancing the CLARITY Act, yet the market has not yet factored this into its expectations. Analysts from Bernstein noted this in their comments to The Block.
"It seems that progress on the CLARITY Act has been more significant than the market anticipated last week. Any positive surprise is definitely not priced in," the experts stated.
They believe that current investor positioning primarily reflects a pessimistic outlook. Consequently, if the legislation moves forward successfully, it could lead to substantial fluctuations in both cryptocurrencies and the stocks of related companies.
This reassessment of expectations stems from the latest compromises made by Republicans concerning ethical standards and protections for local banks.
On September 14, President Donald Trump agreed to most aspects of a bipartisan proposal that tightens restrictions on the crypto business for officials. Notably, state attorneys general will be empowered to enforce these prohibitions through the courts.
Moreover, officials and their spouses will be required to sell significant stakes in crypto companies or place them in independent management.
Bernstein characterized these conditions as the "maximum possible" concession from the White House. Analysts suggested that these changes could persuade a few Democrats to support moving forward with the legislation, allowing negotiations to resume before a vote on the bill occurs.
The second measure addresses concerns from local banks regarding potential deposit outflows to stablecoins. Should the U.S. Treasury Secretary identify a significant drop in deposits, they will have the authority to temporarily limit rewards for stablecoin holders.
Market Outlook
On September 15, the Senate is scheduled to vote on whether to end debate on the proposal to consider the CLARITY Act. Achieving this requires 60 votes, and with Republicans holding 53 seats, they will need support from Democrats or independent senators.
Success in this procedure will not equate to the law's passage; the Senate will still need to review amendments and vote on the document, followed by reconciling it with the House of Representatives.
Bernstein analysts emphasized that the Federal Reserve's decision on interest rates, set for September 16, will be the next significant event.
Experts warned that a simultaneous failure of the CLARITY Act and a hawkish stance from the central bank could lead to a major market downturn. Conversely, a favorable outcome from the vote may trigger a positive market reaction, according to analysts.
If the bill fails, Bernstein anticipates an acceleration in the development of regulations for the crypto industry from the SEC and CFTC. According to the experts, this could aid industry stocks in recovering from an initial sell-off.
It is worth noting that in September, Coinbase CEO Brian Armstrong stated that the digital asset industry in the U.S. would receive clearer regulation regardless of the CLARITY Act's voting outcome.