Bernstein analysts believe the crypto market is undervaluing the potential impact of the Clarity Act ahead of a key Senate vote.
Market Underestimates Clarity Act Potential, Analysts Say
Analysts from Bernstein suggest that the cryptocurrency market is failing to recognize the significance of recent updates regarding the Clarity Act, particularly after Republicans made notable concessions on ethics and banking regulations. This comes just ahead of a procedural vote scheduled in the Senate.
Gautam Chhugani and his team indicated in a client note that any positive developments related to the Clarity Act are not reflected in current market valuations. "We believe that any favorable surprise is certainly not reflected in current market prices," they stated.
The Clarity Act seeks to establish federal oversight for digital assets, aiming to define the respective roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). For the bill to move forward, support from Democrats is crucial, though discussions have been complicated by concerns over cryptocurrency holdings among officials and stablecoin rewards.
Republican lawmakers have introduced a revised draft that incorporates 126 amendments requested by Democrats, including provisions that would empower state attorneys general to enforce ethical standards. This updated version has gained the backing of former President Donald Trump.
Senator Cynthia Lummis (R-Wyo.), who leads the Senate Banking Subcommittee on Digital Assets, urged her Democratic counterparts to back the revised bill, asserting that their requests have been met. "After a year of rigorous bipartisan discussions, this bill is prepared for a vote," Lummis said, encouraging Democrats to support the legislation.
Earlier drafts of the bill had placed the enforcement of ethics provisions solely under the Justice Department, particularly regarding President Trump's cryptocurrency involvement. Bernstein believes that the recent changes, including mandates for divestment or the establishment of blind trusts, may persuade some Democrats to support the bill.
Despite these developments, some analysts remain skeptical about the bill's passage. TD Cowen analyst Jaret Seiberg expressed doubts, suggesting there is only a 25% chance of enactment this year, while Beacon Policy Advisors has increased its estimate to a 30%-40% probability, up from below 10%.
The revised legislation would also grant the Treasury the power to restrict stablecoin rewards if such incentives lead to significant withdrawals from community banks. Banking advocates argue that these payments could divert essential deposits, while supporters of cryptocurrency argue for their continuation. Both sides are actively lobbying senators.
In the absence of the Clarity Act, the CFTC plans to proceed with cryptocurrency regulations under its existing authority. CFTC Chair Michael S. Selig has directed staff to explore these regulations, noting that legislative action would provide protections less likely to be reversed by future administrations.
