Bernstein Warns Failure of CLARITY Act Could Trigger Crypto Selloff

The CLARITY Act has made more progress than markets expected, according to Bernstein analysts. They believe investors have not priced in any positive surprise ahead of Tuesday's cloture vote.

Bernstein analysts led by Gautam Chhugani wrote that prediction markets have been too pessimistic on the CLARITY Act, with Kalshi odds climbing back above 30% after Senate Republicans released a final draft Sunday night. The draft incorporates 126 substantive changes Democrats requested and President Donald Trump agreed to most of a bipartisan ethics proposal.

Any positive surprise is definitely not priced in, according to Bernstein. They called the ethics offer 'probably as good as it gets,' arguing the concessions could win over enough Democrats to clear Tuesday's 60-vote cloture threshold.

A failure would hurt both the banking lobby and the crypto industry, as the latest draft gives banks guardrails around stablecoin yield and deposit flight during a potential banking crisis. Without that language, third-party platforms keep offering full yield on idle stablecoin balances with no restrictions, the exact outcome banks have been pushing to prevent.

Senate Democrats face their own political risk heading into the midterms, as the crypto lobby has backed candidates from both parties and voting against the bill risks being cast as anti-crypto in competitive races. The analysts also noted that a hawkish Fed combined with a failed vote could trigger a major drawdown across both crypto assets and crypto stocks.