Bernstein sees more Clarity Act progress than markets expected, says 'any positive surprise is definitely not priced in'

Analysts at research and brokerage firm Bernstein said Monday that there may be more progress on the Clarity Act than markets expected last week after Senate Republicans made concessions on ethics and other concerns ahead of Tuesday's procedural vote.

"It now appears, there may be further progress on Clarity than consensus expectations last week," the analysts led by Gautam Chhugani wrote in a note to clients. "We reckon, any positive surprise is definitely not priced in," they said, as prediction market odds climbed back above 30% on Kalshi. 

Late Sunday, Senate Republicans released what they described as the final draft of the Clarity Act, incorporating 126 "substantive changes" requested by Democrats. President Donald Trump agreed to most of a bipartisan ethics proposal, including a role for state attorneys general in enforcing its restrictions. The draft also gives the Treasury secretary authority to impose a "circuit-breaker" and temporarily restrict stablecoin rewards if payment stablecoins trigger substantial withdrawals from community banks.

Bernstein said the ethics offer is "probably as good as it gets," adding that the White House's acceptance of an enforcement role for state attorneys general, on top of crypto divestment or blind trust conditions, could be enough for a handful of Democrats to support the cloture vote, keeping hopes alive for last-minute negotiations before the final vote.

The analysts also said some Senate Democrats may be wary of being cast as "anti-crypto" ahead of the midterms, noting that the crypto lobby has supported candidates from both parties.

Bernstein argued the Clarity Act failing to pass would be "the worst outcome," including for the banking lobby. The latest bill draft gives banks guardrails around stablecoin yield and deposit flight during a potential banking crisis, they said, and without it, third-party platforms could continue offering full yield on idle stablecoin balances.

Markets head into catalyst-heavy week

The Senate is scheduled to hold its cloture vote on the motion to proceed to the Clarity Act on Tuesday. Cloture needs 60 votes. Republicans have 53 Senate seats, so they would need support from Democrats or independents if all Republicans back the motion.

Bernstein said markets are heading into a "catalyst heavy week," with the Clarity vote followed by the Federal Reserve's latest interest rate decision on Wednesday. The analysts said a hawkish Fed combined with the bill failing could lead to a "major drawdown," while arguing that current market positioning has a bearish bias. Both native crypto markets and crypto stocks could see large moves in either direction depending on the outcome, they said.

Bernstein has previously argued that failure to pass the Clarity Act would accelerate Securities and Exchange Commission and Commodity Futures Trading Commission crypto rulemaking rather than halt regulatory progress. The analysts reiterated that view Monday, saying increased rulemaking could help crypto stocks recover following an initial selloff. CFTC Chair Michael Selig has also said regulators could end up "writing all the rules" if Congress does not pass the legislation.