Bernstein analysts highlight that market expectations may not reflect the significant progress of the CLARITY Act due to recent Republican concessions.
Recent Republican concessions have heightened the chances for the CLARITY Act to advance, yet analysts from Bernstein believe that the market has not adequately adjusted its expectations. They highlighted this observation in comments made to The Block.
"It appears that the progress on the CLARITY Act has been more substantial than what the market expected last week. Any positive surprises are certainly not reflected in current pricing," the analysts remarked.
They noted that investor sentiment is currently skewed toward pessimism. Should the legislation advance, it could result in significant volatility in cryptocurrency markets and the stock prices of related firms.
This reassessment follows recent compromises by Republicans aimed at addressing ethical standards and protections for local banks. On September 14, President Donald Trump endorsed a bipartisan proposal that imposes stricter regulations on crypto activities for government officials. Key provisions include empowering state attorneys general to enforce these rules in court and requiring officials and their spouses to divest from or independently manage their crypto holdings.
Bernstein described these terms as the "maximum possible" concession from the administration, suggesting that they might sway some Democrats to support the bill, enabling further negotiations ahead of a vote.
Another aspect of the proposal seeks to alleviate concerns from local banks regarding potential outflows of deposits to stablecoins. The U.S. Treasury Secretary would gain the authority to temporarily limit rewards for stablecoin holders if a significant drop in deposits is detected.
Market Outlook
A Senate vote to end debate on the CLARITY Act is scheduled for September 15, requiring 60 votes to proceed. With Republicans holding 53 seats, bipartisan support will be essential.
However, this vote does not guarantee the bill's passage, as the Senate must still consider amendments and reconcile the legislation with the House of Representatives.
Bernstein analysts pointed out that the Federal Reserve's interest rate decision, set for September 16, will be another pivotal moment for the market.
Experts cautioned that a simultaneous failure of the CLARITY Act and a hawkish stance from the Fed could lead to a significant market downturn. Conversely, a successful vote may spark a positive market response.
If the bill does not pass, Bernstein predicts that the SEC and CFTC will accelerate regulatory developments for the crypto sector, potentially helping industry stocks rebound from any initial declines. Notably, Coinbase CEO Brian Armstrong mentioned that clearer regulations for the digital asset industry in the U.S. would emerge regardless of the CLARITY Act's fate.
