If the CLARITY Act ultimately fails to pass, what will happen?

Original | Odaily Planet Daily (@OdailyChina)

Author｜jk

The "Digital Asset Market Structure Act" (Digital Asset Market Clarity Act, or CLARITY Act) has been stalled in the Senate for over a year since passing the House of Representatives with 294 votes in favor and 134 against on July 17, 2025. The Senate Banking Committee voted 15-9 on May 14, 2026, to move the bill to the legislative calendar, but to date, it has not received a full Senate vote or been signed by the President.

So, what's the holdup? Odaily Planet Daily has conducted a detailed analysis on this matter. Interested readers can check out "So Close Yet So Far: Where Exactly is the CLARITY Act Stuck?"

The core of this bill is to classify and characterize crypto assets: Clearly define whether tokens are securities or commodities, thereby delineating the regulatory authority of the SEC and the CFTC, while also covering provisions such as users self-custodying private keys, stablecoin yield mechanisms, and registration of foreign exchanges. The main controversy currently blocking a Senate vote revolves around ethics review clauses concerning conflicts of interest among senior government officials holding crypto assets.

On July 27, Senate Majority Leader John Thune confirmed that the Senate will prioritize sanctions legislation against Russia and personnel appointments in the near term, potentially delaying the voting window for the CLARITY Act until September. Industry and congressional negotiators had generally viewed August 7 as the last realistic window for the bill to pass in 2026. If missed, most analysts believe the likelihood of the bill becoming law this year will significantly decrease.

Currently, Polymarket data shows that the probability of the CLARITY Act being signed into law this year is only 35%. In February, this figure was 82%.

Clarity's probability of passing this year has been steadily declining. Source: Polymarket

So, if the Clarity Act truly fails to pass, how will the crypto market react? What about Bitcoin? How will related U.S. stock market assets be impacted? What political shifts will occur in Washington? Odaily Planet Daily will examine from these three perspectives the potential scenarios the industry might face if the CLARITY Act ultimately fails in the Senate.

1. Crypto Market: Analysts Generally Believe the Impact Will Be Limited, and the Market Has Already Priced It In

Current price action suggests that the market's pessimism regarding the CLARITY Act is already gradually being reflected. The most obvious sign is the decline in Polymarket probability from 82% to the current 35%. Looking at the trend, this probability rose above 70% several times between February and May but has consistently decreased since June, clearly indicating waning confidence. Cumulative trading volume has now reached $2.845 million.

Bitcoin's price itself has faced recent pressure, fluctuating around the $65,000 to $66,000 range in late July. Market interpretations generally link this to macro liquidity factors rather than the bill itself.

On the institutional side, most analysts are skeptical of the view that "failure of the bill equates to an industry crisis." Ed Engel, an analyst at Compass Point Research & Trading, maintains a sell rating on Coinbase. However, he also points out that even if the CLARITY Act fails, there are enough industry events in the second half of the year to maintain market attention, and the blockchain industry still has opportunities in the next two to three years to demonstrate its practical application value.

It's important to note that the specific content of the bill itself contains highly contested points, and its trajectory will affect different sub-sectors in various ways. Take the stablecoin yield clause as an example. A draft of the CLARITY Act in March proposed prohibiting any stablecoin holding yield arrangement that is "substantially equivalent to interest." This news caused Circle's stock price to plummet 20% in a single day, and Coinbase's stock price fell nearly 10% on the same day. In other words, the impact of the bill's failure on the market largely depends on the final details of the clauses, rather than the mere passage or failure of the bill itself.

2. U.S. Stock Market: Will Coinbase and Circle Crash?

Coinbase

Coinbase's performance over the past week. Source: Google

Coinbase's stock price has recently been under pressure as the probability of the bill passing has decreased. On July 28, COIN closed at $165, down 3.8% over the past five days, with the decline attributed to selling pressure due to the weakening prospects of the bill. In the week prior to July 24, COIN had fallen from around the $169 level. Raymond James set a target price of $158, approximately 6.5% below the then-current price; Oppenheimer previously lowered its target price to $209. Baird lowered its target price from $160 to $142, maintaining a neutral rating.

In other words, institutions believe that if the CLARITY Act does not pass, we will likely see Coinbase trading in the $140-$160 range.

At the same time, most analysts do not directly link Coinbase's long-term investment thesis to the success or failure of the CLARITY Act. Analysis cited by TipRanks suggests that even if the bill doesn't pass before August, the Wall Street trend towards institutional allocation in crypto assets will still support Coinbase's long-term growth. Coinbase is set to release its second-quarter earnings on July 30. The market expects earnings per share of $0.19, a significant improvement from the first quarter's loss per share of $1.49. In the long run, if CLARITY fails, long-term growth could potentially offset this setback.

Circle

Circle's performance over the past week. Source: Google

Circle's situation is more complex. Some analysts believe that the failure of the bill might not necessarily be a bad thing for Circle. Mizuho Securities analysts point out that if the CLARITY Act passes, bringing a clearer regulatory framework, it might actually attract more competitors into the stablecoin space, accelerating homogenized competition in the stablecoin business and potentially reducing Circle's revenue in the long run. This year, the stablecoin sector saw the launch of the Open USD project, backed by over 140 institutions including Visa, Mastercard, Stripe, and BlackRock, directly competing with Circle's USDC. Mizuho had previously downgraded Circle's rating due to this project.

On the other hand, if the clauses in the CLARITY Act concerning stablecoin yield limitations are eventually implemented, they could weaken Coinbase's high-margin revenue from its USDC distribution agreement. This would tilt negotiating power towards Circle during their commercial agreement renegotiations scheduled for August 2026. Morgan Stanley analyst Thielen believes that a stringent federal regulatory framework generally benefits licensed issuers with compliance capabilities, asset scale, and credit backing, and Circle stands to benefit relatively in this landscape. Bitwise CIO Matt Hougan argues that the stock sell-off triggered by the earlier draft bill was "overblown" and that the bill itself does not change Circle's long-term investment thesis.

In other words, if CLARITY truly cannot pass, it might actually be good for Circle's long-term price. If sentiment continues to weaken in the short term, several repeatedly mentioned support levels are around $61.70. In a more extreme scenario, some in the market have mentioned a potential pullback to this year's February low of $49.

Crypto Treasury Companies

For crypto treasury companies like Strategy (formerly MicroStrategy, ticker MSTR), their stock price correlation with Bitcoin's price is much higher than any direct link to the CLARITY Act itself. They can be viewed as leveraged plays on Bitcoin.

As of July 1, impacted by Bitcoin's price falling below $59,000, MSTR's stock price slid to the $85-$86 range, marking an eleventh consecutive monthly decline and a retracement of approximately 84% from its all-time high of around $540 in November 2024. Citigroup analysts link their baseline Bitcoin price target of $100,000 to the expectation of the CLARITY Act passing. They believe that if the bill passes and pushes Bitcoin to $100,000, the value of Strategy's Bitcoin holdings would correspondingly rise to approximately $84 billion.

Strategy recently disclosed that its model calculates a lower bound for Bitcoin annualized return at negative 11.34%. If actual returns fall below this level, the company might need to consider restructuring its debt. Notably, two listed companies sold a combined total of 511 Bitcoins within 24 hours to repay approximately $31.7 million in debt. These financial pressures are relatively independent of the CLARITY Act's legislative process but could be amplified in an environment where the bill's fate is uncertain and market sentiment is weak. Strategy is scheduled to release its second-quarter earnings in the week of July 30-31, and the market expects its stock price volatility to increase during this period.

3. Washington Political Landscape: Future Legislation Will Be More Difficult

Looking at the Senate voting structure, the bill's passage depends on securing the support of 7 to 9 Democratic senators to overcome the 60-vote threshold. On the Republican side, Senators Josh Hawley and Rand Paul are expected to vote against it based on substantive positions. This means that even if all 53 Republican senators are present, it would not be enough to pass the bill on their own. On the Democratic side, Senator Ruben Gallego of Arizona is considered a relatively reliable source of support.

It's noteworthy that Democratic opposition to the bill isn't solely about the crypto regulatory framework itself; it's significantly linked to President Trump and his family's disclosed crypto asset investments exceeding $1 billion. Several Democratic senators view the ethics clause as a check on the President's potential conflicts of interest. Senator Angela Alsobrooks previously described a compromise proposal from the White House as a "not serious proposal." This has tied the legislative progress of the CLARITY Act, to some extent, with the broader goal of opposing Trump, rather than purely a technical debate over industry regulation.

If the bill ultimately fails to pass in 2026, most analysts believe it won't create a regulatory vacuum. Instead, it means the crypto industry will continue to rely on two existing paths in the short term: First, the GENIUS Act, which took effect in July 2025, currently specifically regulating payment stablecoins and their issuers. Second, the respective regulatory agendas of the SEC and the CFTC. The SEC's Regulation Crypto proposal is expected to formally enter the rulemaking process in the second half of 2026.

Regarding the timeline, the November 2026 midterm elections are a key variable influencing the bill's future process. Most analysts believe that once the window before the August recess is missed, the possibility of resuming consideration in the fall is significantly reduced due to appropriations bill disputes and the approaching election cycle. Substantial progress would likely have to wait until 2027. However, 2027 itself falls into the post-midterm political reshuffling phase, significantly lowering the chance of re-establishing the bipartisan consensus that the bill previously enjoyed. Some industry lobbyists have proposed an alternative path: incorporating the core provisions of the CLARITY Act into a must-pass omnibus bill at the end of the year. However, to date, no senator has publicly confirmed that this strategy is being seriously considered.