JPMorgan says Clarity Act 'not fully dead,' but passage window 'extremely narrow'

The Clarity Act is "not fully dead" after it failed to advance in a Senate procedural vote on Tuesday, but the window for passing the crypto market structure bill this year is now "extremely narrow and only getting narrower," JPMorgan analysts said.

The Senate vote ended 49-50, short of the 60 votes needed to move the bill forward. Several Democrats involved in drafting and negotiating the legislation voted against it. Notably, Sen. Thom Tillis changed his vote to "no" at the last moment and filed a motion to reconsider. The JPMorgan analysts said this procedural step allows Senate Republicans to bring the bill back to the floor.

"Recall, the GENIUS Act (now law) also failed its first cloture vote, so there is precedent in crypto-related legislative proceedings," the JPMorgan analysts led by Kenneth Worthington said in a Wednesday note.

"We understand that the bill remains on the Senate calendar and leadership could call for another vote before this Congress adjourns at the end of the year," they added.

Still, the remaining timeline is tight. The analysts see limited momentum for further negotiations during the roughly two-and-a-half weeks of Senate time remaining before the midterm elections or during the lame-duck session afterward.

They said key supporters of the bill have shown frustration over the negotiations and may be less willing to continue debating amendments or push for more Senate time.

Focus shifts to regulators

The analysts expect investors and crypto market participants now to focus more on the Securities and Exchange Commission and Commodity Futures Trading Commission as the bill's prospects weaken.

The agencies could introduce rules that provide some clarity for crypto companies and encourage more capital to enter the sector. However, the analysts said such rules would be less durable than a law passed by Congress.

"While agency rulemaking may establish some guardrails to appease the crypto-ecosystem and instill some confidence into incremental capital flows, we acknowledge that agency rulemaking is less durable than legislative statutes since the agency itself can repeal or amend its rules in subsequent administrations and is vulnerable to courts, whereas repealing statutes would require another act of Congress," the analysts wrote.

The industry is particularly watching for a possible SEC "innovation exemption" for crypto projects, including tokenized equities, the analysts said. They noted that reports have suggested the SEC was waiting to see whether the Clarity Act passed before moving ahead with its own proposal.

Reactions to the failed Clarity Act procedural vote

Galaxy founder and CEO Mike Novogratz blamed both parties for the failed vote, saying disagreements over government ethics provisions prevented a broader compromise.

Novogratz said he remains confident that the SEC and CFTC will continue setting crypto rules, which Congress could later turn into law to provide longer-term certainty.

Mizuho Securities also said attention could shift back to the SEC and CFTC after the failed vote, with regulators moving through rulemaking and guidance instead of waiting for Congress.

The firm said the declines in Circle and Coinbase shares were understandable because of continued uncertainty around stablecoin yield. However, Mizuho said Robinhood, Figure and Strategy were being "unduly punished."

It noted that 80% to 90% of Robinhood's revenue does not come from crypto, while Figure mainly operates a home equity line of credit marketplace. Strategy remains sensitive to bitcoin prices, but recent bitcoin flows suggest that medium-term market sentiment is still improving, the firm said.

TD Cowen's Lance Vitanza also said near-term passage of the Clarity Act now looks increasingly unlikely, but regulatory changes are still moving forward through SEC rulemaking.

Vitanza said legislation remains the preferred long-term solution, though regulators may be able to address some of the crypto industry's more immediate concerns. He expects the digital asset industry to keep developing, but "likely at an uneven pace."

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