Summary
- Bernstein analysts believe the market has not factored in a potential positive outcome from the Clarity Act.
- Republicans have amended ethics enforcement and protections for community bank deposits.
- Analysts have varying opinions on the likelihood of the bill passing before Tuesday's procedural vote.
According to analysts at Bernstein, the cryptocurrency markets may be undervaluing the advancements regarding the Clarity Act, particularly after Republicans made concessions on ethics and banking issues. This assessment comes as a Senate procedural vote is set for tomorrow.
"We believe that any favorable surprise is certainly not reflected in current market prices," stated the analysts, led by Gautam Chhugani, in a note to clients on Monday.
Myriad: Will Congress pass the Clarity Act? Click to make your prediction.The Clarity Act aims to set federal regulations for digital assets and clarify the roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission. For the bill to advance, support from Democrats is essential, but tensions regarding officials' cryptocurrency holdings and stablecoin rewards have complicated this process.
Republican sponsors assert that their latest draft, released on Sunday, includes 126 amendments requested by Democrats, notably allowing state attorneys general to enforce ethical guidelines. Former President Donald Trump has endorsed the updated restrictions.
Senator Cynthia Lummis (R., Wyo.), who chairs the Senate Banking Subcommittee on Digital Assets, encouraged Democrats to support the adjusted legislation, emphasizing that Republicans have met their requests.
"After a year of rigorous bipartisan discussions, this bill is prepared for a vote," Lummis said in a statement. "Democrats got what they wanted; now they need to agree to it."
Earlier versions of the bill placed enforcement of the ethics provisions solely in the hands of the Justice Department, primarily concerning President Trump's cryptocurrency activities. Bernstein noted that this modification, along with requirements for divestment or blind trusts, might sway some Democrats to back the bill's progression.
Nonetheless, some analysts remain doubtful about the bill's future.
“This isn't a negotiated agreement. Democrats are being handed the final version,” TD Cowen analyst Jaret Seiberg commented on Monday, maintaining a mere 25% chance of the bill being enacted this year. Meanwhile, Beacon Policy Advisors has increased its probability estimate to 30%-40%, up from below 10%.
The revised proposal would also give the Treasury the authority to limit stablecoin rewards if these incentives lead to significant withdrawals from community banks. Banking groups argue that such payments could siphon off deposits essential for lending, while crypto proponents advocate for the continuation of these rewards. Both factions have been actively lobbying senators in their respective states.
Myriad: Bitcoin's next move? Click to make your prediction.These adjustments follow a draft released on September 10, which had largely retained the ethics provisions while also introducing registration requirements for crypto trading protocols managed by individuals or groups.
If Congress does not pass the Clarity Act, the Commodity Futures Trading Commission (CFTC) intends to pursue regulations for cryptocurrency using its existing authority. CFTC Chair Michael S. Selig has instructed staff to investigate these regulations, while noting that legislation would offer protections that would be more challenging for future administrations to retract.