JPMorgan says crypto bill's fading odds hurt outlook, warns parts could discourage institutional adoption

The falling odds of the Clarity Act passing the U.S. Senate before year-end are a setback for crypto markets, JPMorgan analysts said, adding that parts of the current draft of the crypto bill could discourage institutional participation.

Prediction market odds of the bill passing before year-end have fallen to 37%, the lowest implied probability this year, as the Senate prioritizes other legislation ahead of the summer recess, JPMorgan analysts led by managing director Nikolaos Panigirtzoglou said in a Wednesday report. The odds currently stand at 37% on Kalshi and 26% on Polymarket. Disagreements over ethics, enforcement, stablecoin yield, decentralized finance and illicit finance remain unresolved, the analysts noted.

The analysts have previously viewed the Clarity Act, or crypto market structure bill, as a positive catalyst for crypto because it would create a clearer regulatory framework for the industry. Under the legislation, digital commodities would be overseen by the Commodity Futures Trading Commission (CFTC), while digital securities would remain under the Securities and Exchange Commission (SEC).

If the bill is eventually passed, it would support the development of more institutional-grade market infrastructure, ease regulatory constraints around decentralized finance and stablecoin issuers, increase onshore liquidity and trading volumes as activity gradually shifts from offshore venues to U.S.-compliant markets, and lower barriers for brokerages, exchanges, market makers, custodians and bank-affiliated platforms to enter the crypto industry, the analysts said.

However, the analysts said parts of the current draft could discourage institutional participation rather than promote it.

"One example is if DeFi is able to trade tokenized securities and tokenized derivatives entirely outside of SEC or CFTC jurisdiction, which the bill as currently drafted would allow. A second example is if crypto entities have to do little if any AML for performing the same activities as banks and broker dealers," the analysts said.

Overall, the longer approval of the Clarity Act is postponed, the greater the risk that growth in tokenization and blockchain-based financial applications is absorbed by existing financial infrastructure instead of benefiting public crypto networks, the analysts said.

The U.S. House of Representatives passed the Clarity Act last July, but the bill has since stalled in the Senate amid disagreements over stablecoin yields, crypto disclosure requirements and other provisions. Senators are working on bipartisan revisions ahead of the Senate's August summer recess, though a vote is expected to slip until after lawmakers return in mid-September.

Earlier Thursday, Crypto Council for Innovation published a 35-page report calling for crypto market structure legislation to be passed without further delay. "A failure to act now will cede the United States' historic leadership of market regulation and innovation to other jurisdictions and will threaten U.S. dollar dominance," the council said.