Bernstein: CLARITY bill failed to pass, or put downward pressure on cryptocurrency valuations

Bernstein: The Senate recess is approaching, and the crypto market faces short-term downside risks.

Wealth management company Bernstein pointed out that the U.S. Senate will enter its summer recess this weekend, and its schedule is becoming a key variable in the crypto industry. Bernstein believes that the likelihood of progress on the Digital Asset Markets Clarification Act is declining, raising the risk of another short-term downturn in cryptoasset valuations-especially Bitcoin.

In a report released Monday, Bernstein also warned that if legislation is blocked, it could trigger a "reflexive" reaction from market participants. However, the company also pointed to a balancing factor: If Congressional action stalls, regulators may strengthen work already underway within existing mandates, including the Securities and Exchange Commission and the Commodity Futures Trading Commission's "crypto projects."

Core Points

Bernstein said that as the Senate enters its summer recess, the momentum of the CLARITY bill is waning, increasing the risk of further market downside. The company expects that if time pressures persist, the crypto market will bottom out and regain momentum at the end of the third quarter or early in the fourth quarter before the midterm elections. Predicted market activity on Polymarket shows a 31% probability that the CLARITY bill will be passed before the end of 2026, down from 38% earlier this week. Bernstein believes that the legislative delay may lead to the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission issuing more proactive policies under the Crypto Project on token classification and DeFi rules.

Recession risks and "reflexive" market reactions

Bernstein's core concern is timing. As the Senate prepares to begin its summer recess, the window for passage of the CLARITY bill appears to be narrowing. The wealth management company said that if the bill fails to make progress, the market may interpret the result as a short-term delay in reforming the structure of the U.S. crypto market. In Bernstein's view, this could trigger an immediate "industry-conditioned" negative reaction that could cause Bitcoin and the broader crypto market to fall again. However, the company's outlook is not entirely pessimistic: it also predicts that strategically, the market may find a bottom and start gathering momentum at the end of the third and early fourth quarters before the midterm elections.

Possible actions by the Crypto Project if the CLARITY bill stalls

Bernstein's report points to important asymmetries. While markets may react negatively to legislative delays, the same outcome could prompt regulators to accelerate action within their existing legal framework. The Crypto Project is a joint initiative that aims to use existing agency powers to develop viable regulatory approaches for digital assets while Congress completes broader legislative work through the CLARITY Act. The U.S. Securities and Exchange Commission first announced the "Crypto Project" in July 2025 under the leadership of Chairman Paul Atkins, and subsequently expanded in September 2025 as a joint staff effort of the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.

According to Bernstein, the SEC and CFTC may respond to Congress 'slow progress by issuing more explanatory documents and clearer guidance. In particular, the company pointed out possible directions involved: token "taxonomy" and interpretative guidance on how different types of tokens should be treated; clearer rules related to decentralized finance; and accelerated introduction of the concept of "innovation exemption" to exempt token offerings from security status for a limited period of time. For investors and builders, the practical implication is that regulatory clarity may not be achieved through CLARITY alone. If Congress fails to deliver in the short term, markets may increasingly price regulatory outputs-such as guidance, explanatory documents, and rule-making momentum from the Securities and Exchange Commission and Commodity Futures Trading Commission.

Polymarket's forecast probability dropped to 31%, and it is expected to pass before the end of 2026.

Bernstein's concerns about the bleak prospects of the CLARITY bill are confirmed in the market's implied probability. Polymarket data shows that the probability of the bill being signed into law before the end of 2026 is 31%, down 7% from the past week and 9% from the past month. The market reported that about $3.7 million was betting on the outcome.

The decline is important because forecast markets often reflect expected changes around the legislative agenda and political will-especially as credible procedural deadlines approach. In this case, the implicit time point of the summer recess is a direct catalyst for pricing uncertainty. Previous reports have also suggested that expectations have changed in recent months: On June 26, Galaxy Digital lowered its probability of becoming law in 2026 to 50%, warning that the U.S. Senate will have little time to pass the market structure bill before its August recess.

Political and industry friction faced by bill

In addition to Senate agenda risks, the CLARITY bill is also responding to political and institutional scrutiny. White House officials are reportedly weighing a bipartisan ethics counterproposal received Thursday after weeks of negotiations between Republican Sen. Tom Tillis and Arizona Democrat Ruben Gallego. According to people familiar with the matter, the proposal would allow state attorneys general to sue federal officials if the Justice Department fails to enforce ethics laws against them. The impact on crypto stakeholders is indirect, but it highlights how broader political processes consume attention and time that could have been used to drive stalled legislation.

The substance of the CLARITY bill also faces resistance. Banks have raised objections that the draft could allow crypto companies to provide stablecoin gains without meeting requirements they claim apply to traditional financial institutions. The bill's stablecoin earnings provisions have caused concern among banking groups. As these tensions persist, the path of the bill becomes more unpredictable-one reason why forecast market probabilities and institutional forecasts can change quickly as lawmakers approach procedural turning points such as recess.

Outlook: Focus on two parallel clues

As the Senate enters recess, traders and long-term participants should focus on two things simultaneously: whether the CLARITY bill gains any late-stage momentum before lawmakers leave; And whether the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission will accelerate the release of practical guidance on token classification and DeFi under the Crypto Project if Congress fails to provide legislative clarity on market pricing.