If the CLARITY Act ultimately fails to pass, what then?

Original by Odaily (@OdailyChina)

Author: jk

The Digital Asset Market Clarity Act (CLARITY Act) has been stalled in the Senate for over a year since passing the House with a vote of 294 to 134 on July 17, 2025. The Senate Banking Committee advanced the bill to the legislative calendar with a 15-9 vote on May 14, 2026, but to date, it has not received a full Senate vote nor been signed by the President.

Where is the bottleneck? Odaily has conducted a specific analysis on this matter. Interested readers can refer to "So Close Yet So Far: Where Exactly is the CLARITY Act Stuck?"

The core of this bill is to classify and define crypto assets: Clearly determining whether tokens are securities or commodities, thereby dividing regulatory authority between the SEC and the CFTC, while also covering provisions on user self-custody of private keys, stablecoin yield mechanisms, and registration of foreign exchanges. The main controversy currently blocking the Senate vote pertains to ethics review clauses concerning conflicts of interest in crypto assets held by senior government officials.

On July 27, Senate Majority Leader John Thune confirmed that the Senate will prioritize legislation on sanctions against Russia and personnel appointments in the near term, potentially delaying the voting window for the CLARITY Act until September. Industry and congressional negotiating parties had widely viewed August 7 as the last realistic window for the bill's passage in 2026. If missed, most analysts believe the prospects for the bill's enactment this year would significantly diminish.

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

Probability of Clarity passing within the year has steadily declined. Source: Polymarket

So, if the Clarity Act truly fails to pass, how will the crypto market react? What about Bitcoin? How will related US stocks be impacted? What political shifts might occur in Washington? Odaily will examine these three dimensions to assess the potential landscape for the industry if the CLARITY Act ultimately fails in the Senate.

1. Crypto Market: Analysts Generally See Limited Impact, with Market Already Pricing In

Based on current price action, the market's pessimism towards the CLARITY Act is already gradually being reflected. The primary indicator is the drop in Polymarket odds from 82% to the current 35%. Trend-wise, this probability rose above 70% multiple times between February and May but has steadily declined since June, showing a clear weakening of confidence. Cumulative trading volume has now reached $2.845 million.

Bitcoin's price itself has faced recent pressure, dipping to the $65,000-$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 "bill failure equals industry crisis." Compass Point Research & Trading analyst Ed Engel maintains a sell rating on Coinbase but notes that even if the CLARITY Act fails, there are enough industry events in the second half of the year to sustain market attention, and the blockchain industry still has opportunities to prove its practical application value over the next two to three years.

It's important to note that the specific provisions of the bill are also highly contentious, and its trajectory affects different sub-sectors in varying ways. Take the stablecoin yield clause as an example: a March draft of the CLARITY Act proposed prohibiting any stablecoin holding yield arrangement "substantially equivalent to interest." This news caused Circle's stock price to plummet 20% in a single day, with Coinbase shares falling nearly 10% the same day. This suggests that the market impact of the bill's failure heavily depends on the final details of the clauses, rather than the bill's passage or failure per se.

2. US Stock Market: Will Coinbase and Circle Plunge?

Coinbase

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

Coinbase's stock price has recently been under pressure alongside the declining probability of the bill's passage. On July 28, COIN closed at $165, down 3.8% over the past five days, with the decline attributed to selling pressure from the weakening outlook for the bill. Earlier in the week of July 24, COIN fell from the $169 level. Raymond James set a price target of $158, approximately 6.5% below the then-current price. Oppenheimer previously lowered its price target to $209. Baird cut its target from $160 to $142, maintaining a neutral rating.

In other words, institutions believe that if CLARITY fails to pass, we will likely see Coinbase trading in the $140-$160 range.

However, 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 fails to pass before August, Wall Street's trend towards institutional allocation to crypto assets will continue to support Coinbase's long-term growth. Coinbase is set to report Q2 earnings on July 30, with the market expecting earnings per share of $0.19, a significant improvement from a loss of $1.49 per share in Q1. Long-term, if CLARITY fails, this growth trajectory could potentially offset the setback.

Circle

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

Circle's situation is more complex. Some analysts argue that the bill's failure might not necessarily be bad for Circle. Mizuho Securities analysts point out that if the CLARITY Act passes smoothly, bringing a clearer regulatory framework, it could actually attract more competitors into the stablecoin space, accelerating homogeneous competition and potentially reducing Circle's revenue in the long run. The stablecoin arena has already seen the entry of the Open USD project, supported by over 140 institutions including Visa, Mastercard, Stripe, and BlackRock, posing direct competition to Circle's USDC. Mizuho had previously downgraded Circle's rating due to this project.

On the other hand, if the CLARITY Act's clauses limiting stablecoin yields are ultimately enacted, it could weaken Coinbase's high-margin revenue from the USDC distribution agreement, tilting bargaining power towards Circle during the renegotiation of their commercial agreement scheduled for August 2026. Morgan Stanley analyst Thielen believes that a stricter federal regulatory framework generally benefits licensed issuers with compliance capabilities, asset scale, and credit backing, positioning Circle as a relative beneficiary in this landscape. Bitwise CIO Matt Hougan believes that the sell-off in Circle's stock triggered by the draft bill was "overinterpreted," and that the bill itself does not change Circle's long-term investment thesis.

In essence, if CLARITY truly fails to pass, it might be favorable for Circle's long-term price. In the short term, if sentiment continues to weaken, repeatedly mentioned support levels are around $61.70, with some market speculation of a potential retracement to the February low of $49 in more extreme scenarios.

Treasury Companies

For crypto treasury companies like Strategy (formerly MicroStrategy, ticker MSTR), their stock price is much more correlated with Bitcoin's price than directly with the CLARITY Act, essentially acting as a leveraged Bitcoin play.

As of July 1, impacted by Bitcoin's drop below $59,000, MSTR's stock price slid to the $85-$86 range, marking an eleventh consecutive month of decline and an approximate 84% pullback from its all-time high of around $540 in November 2024. Citigroup analysts linked their base case of Bitcoin reaching $100,000 to the expectation of the CLARITY Act passing. They believe that if the bill is enacted, pushing Bitcoin to $100,000, the value of Strategy's Bitcoin holdings would rise correspondingly to approximately $84 billion.

Strategy recently disclosed that its model estimates a lower bound for Bitcoin's annualized return at negative 11.34%. If actual returns fall below this level, the company may need to consider restructuring its debt. Notably, two listed companies sold a combined 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 of prolonged legislative uncertainty and weak market sentiment. Strategy is scheduled to release its Q2 earnings in the week of July 30-31, and the market expects increased volatility in its stock price during this period.

3. Washington Political Landscape: Future Legislation Will Be Difficult

Looking at the Senate's voting structure, passing the bill hinges on securing support from 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, they would still lack the votes to pass the bill alone. On the Democratic side, Arizona Senator Ruben Gallego is considered a relatively reliable source of support.

Notably, the Democratic opposition to the bill is not solely about the crypto regulatory framework itself. It is significantly linked to President Trump and his family's disclosed investments exceeding $1 billion in crypto assets. Several Democratic senators view the ethics provision as a check on potential presidential conflicts of interest. Senator Angela Alsobrooks previously labeled a compromise proposal from the White House as "a unserious offer." This has made the legislative process for the CLARITY Act, to some extent, tied to the broader goal of opposing Trump, rather than being a purely technical debate on industry regulation.

If the bill ultimately fails to pass in 2026, most analysts believe it won't create a regulatory vacuum. Instead, the crypto industry will likely continue relying on two existing paths in the near 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 CFTC, including the SEC's "Regulation Crypto" proposal, which is expected to formally enter the rulemaking process in the second half of 2026.

In terms of timing, the November 2026 midterm elections are a key variable affecting the bill's future trajectory. Most analysts believe that if the window before the August recess is missed, the chances of resuming consideration in the fall are slim due to appropriations disputes and the approaching election cycle. Substantive progress would likely be pushed to 2027, a period of political reshuffling post-midterms, where the opportunity to replicate the previous bipartisan consensus would be significantly reduced. Some industry lobbyists have proposed an alternative path: incorporating the core provisions of the CLARITY Act into must-pass omnibus legislation by year-end. However, no senator has publicly confirmed that this strategy is under serious consideration.