Bernstein Says Clarity Act Progress Could Surprise Crypto Markets

Key Takeaways

• Bernstein analysts said markets may be underestimating progress on the Clarity Act.
• Republicans added ethics concessions and safeguards against stablecoin-driven bank deposit outflows.
• Bernstein sees bearish market positioning ahead of the September 15 Senate vote and September 16 Fed decision.

Analysts at research and brokerage firm Bernstein said that negotiations over the Clarity Act may have advanced further than markets expected, suggesting a positive outcome could surprise investors ahead of Tuesday’s Senate vote.

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Analysts led by Gautam Chhugani wrote in a note to clients, “It now appears, there may be further progress on Clarity than consensus expectations last week,” The Block reported. “We reckon, any positive surprise is definitely not priced in.”

Their assessment followed Republican concessions on political ethics and community bank concerns. Bernstein said the changes could attract enough Democratic support to keep negotiations moving.

Republicans Add Ethics and Stablecoin Safeguards 

Late Sunday, September 13, Sens. Cynthia Lummis (R-Wyo.), John Boozman (R-Ark.), and Tim Scott (R-S.C.) released what they described as a final draft of the Clarity Act, saying it incorporates 126 substantive changes Democrats requested.

They said President Donald Trump agreed to most of a bipartisan ethics proposal, including a role for state attorneys general in enforcement. The draft addresses concerns about public officials profiting from crypto interests while overseeing the industry.

The revised draft would authorize the Treasury Secretary to restrict stablecoin rewards if substantial deposit outflows threaten community banks. Other revisions add safeguards against conflicts involving affiliate trading, clarify state consumer-protection powers, and adjust protections for software developers.

However, these remain proposed changes, and the legislation has not become law.

Bernstein Sees Room for Democratic Support

Bernstein analysts described the ethics offer as “probably as good as it gets.” They added that the White House’s acceptance of an enforcement role for state attorneys general, alongside requirements for covered individuals to divest significant crypto-related financial interests or use qualified blind trusts, could persuade some Democrats to support cloture, allowing negotiations to continue toward a final vote.

The analysts also said some Senate Democrats may want to avoid appearing “anti-crypto” ahead of the midterms, given the crypto industry’s financial support for candidates from both parties.

Bernstein also argued that the Clarity Act failing to pass would be “the worst outcome,” including for the banks. The latest draft includes safeguards against stablecoin-related deposit outflows during a potential banking crisis. Without those restrictions, the analysts said, third-party platforms could continue offering yield on idle stablecoin balances.

Senate Vote Comes Before Fed Decision

The Senate is scheduled to hold a cloture vote on the motion to proceed to the Clarity Act on Tuesday, September 15. Reaching the 60-vote threshold would limit debate on the motion, not approve the bill.

Currently, Republicans hold 53 Senate seats. If every Republican supports the motion, at least seven Democrats or independents must join them.

Bloomberg earlier reported that around seven to 10 Democrats “sound like they want to ultimately pass a bill.”

Further Senate votes and House approval of any amended text would still be needed before the legislation could reach the president.

Bernstein said the markets are heading into a crucial week with the Clarity Act vote followed by the Federal Reserve’s latest interest rate decision on Wednesday. Analysts warned that failure to advance the bill, combined with a hawkish Fed decision on September 16, could trigger a sharp selloff.

They said crypto assets and related stocks could move strongly in either direction as investors react to both events.

Bernstein reiterated its view that failure in Congress would not necessarily stop regulatory progress but could accelerate SEC and CFTC rulemaking, potentially supporting a recovery in crypto stocks after an initial selloff.  

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