Bernstein: Clarity Act Progress Possible... Crypto Market Hasn't Fully Priced In Positive Developments

The cryptocurrency market has yet to fully reflect positive developments in the US Clarity Act, according to a report by blockchain media Decrypt on April 14 (local time).

Bernstein analysts believe that a recent Republican amendment could secure some Democratic support ahead of tomorrow's Senate procedural vote. The Clarity Act aims to establish federal rules for digital assets and clarify the roles of the SEC and CFTC.

However, progress has been hindered by disagreements over cryptocurrency holdings by public officials and stablecoin compensation issues. Bernstein analysts stated in a client memo that 'a positive surprise is clearly not yet reflected in prices,' noting that the market may be underestimating the likelihood of legislative advancement after Republicans incorporated ethics regulations and banking sector concerns into their latest amendment.

The Republican side explained on April 13 that their updated draft incorporates all 126 changes requested by Democrats, including provisions for state attorneys general to participate in ethics enforcement. Former President Donald Trump has also agreed to strengthened restrictions.

Senator Sinema Loomis, who chairs the Senate Banking Committee's Digital Assets Subcommittee, publicly urged Democratic support, stating that after 'a year of intense bipartisan daily negotiations,' the bill is ready and Democrats should now vote in favor.

A key point of contention has been the enforcement mechanism for ethics regulations. The original draft primarily targeted Trump's cryptocurrency business by granting sole authority to the Department of Justice. The new amendment adds a role for state attorneys general, along with provisions regarding asset disposition or blind trust requirements. Bernstein believes these changes could sway some Democratic lawmakers.

However, outlooks on passage remain divided. TD Cowen's Jared Sawyer maintained a skeptical view, stating 'this is not an agreed-upon compromise; Democrats are being presented with the final result,' and estimated only a 25% chance of passage this year. Conversely, Beacon Policy Advisors raised their forecast from below 10% to 30-40%.

The amendment also includes measures addressing community bank deposit outflow concerns related to stablecoin compensation. The Treasury Department will have the authority to limit such compensation if it causes large-scale deposit withdrawals from regional banks. Banks argue that these compensation structures could siphon deposits used for lending, while the crypto industry has pushed back, arguing for maintaining compensation structures. Both sides are lobbying respective senators.

Earlier draft released on April 10 largely maintained ethics provisions but added registration requirements for cryptocurrency protocols controlled by individuals or groups. The Republicans then introduced a revised amendment to better reflect Democratic demands ahead of the vote.

The outcome of tomorrow's procedural vote could significantly alter the regulatory landscape. If Congress fails to pass the Clarity Act, the CFTC would proceed with its existing authority to establish crypto regulations. Chairman Michael S. Selig has directed review of relevant rules but emphasized that legislation is needed for a more durable regulatory framework, making this vote a pivotal point in determining whether US crypto regulation will follow a legislative path or shift toward agency-led action.