Bitwise CIO: What would happen to the crypto market if the CLARITY Act fails to pass this week?

Author: Matt Hougan, Chief Investment Officer at Bitwise

Translated by Chopper, Foresight News

If you’re like me and have heard enough about the CLARITY Act already, let’s be honest: the U.S. Congress should pass this bill. If enacted, the crypto industry would benefit significantly. The CLARITY Act isn’t perfect, but it’s still a reasonably solid piece of legislation. It would boost the U.S. economy, protect investors, strengthen ethical safeguards, and help the United States gain a competitive edge in the era of on-chain finance.

However, this landmark crypto legislation has been moving through the congressional process since May 2025. Its origins trace back even earlier to the FIT21 Act, which passed the U.S. House of Representatives as far back as May 2024—804 days ago.

Over the past few months, many people—including myself—have viewed this week as the make-or-break moment for the CLARITY Act. The reason is that the U.S. Senate is set to begin its August recess this Friday, August 7, and won’t reconvene until September 14. Under Senate rules, if senators want to hold a vote before the recess, they must file a motion to end debate by Wednesday, August 5—at the latest.

The prevailing view is that if Congress fails to vote on the bill before the August recess, the legislation will likely die, as lawmakers will quickly shift their focus to the November general election. Polymarket forecasts only a 27% chance of the bill passing in 2026—a sharp drop from 82% as recently as February this year.

The best-case scenario for the crypto industry is the smooth passage of the CLARITY Act. If this comes to pass, I expect the crypto market to enter a new bull run. However, given the low probability of this outcome, I outline below the scenarios the market would face if the bill fails to pass.

Let’s start with the bad news: even if the CLARITY Act fails to pass this week, the matter won’t be settled once and for all. The bill will enter a kind of 'zombie state'—not formally abandoned, but advancing only with great difficulty.

With the August deadline approaching, rumors are already circulating that the bill could be postponed for a vote in September. Some have even suggested delaying it until December, during the so-called 'lame-duck session' of Congress (note: in the U.S., a lame-duck session refers to the period after the November congressional elections but before the new Congress is sworn in on January 3 of the following year, during which the outgoing Congress continues to conduct business). It’s common for Congress to bundle multiple bills into a year-end omnibus spending package, forcing lawmakers to vote on a package containing both provisions they support and those they oppose. Some hope the CLARITY Act could pass through this backdoor route. After Wednesday’s deadline, we can expect a steady stream of reports discussing efforts to 'sneak through' the bill this fall or winter.

The downside of this situation is that the uncertainty surrounding the bill has caused many institutional investors to adopt a wait-and-see stance. They’re reluctant to allocate capital to crypto assets only to face legislative failure and a subsequent market downturn. Institutions generally prefer to act only after the situation becomes clearer.

If the bill fails to pass this week, the most favorable scenario would be a further significant drop in its passage probability on Polymarket—falling to the low teens or below. Should this occur, the market might experience brief volatility but would likely position itself for a rebound in the fall.

More importantly, the crypto industry itself won’t suffer a fatal blow.

Even if the CLARITY Act doesn’t become law, the industry will find its own path forward. Last week, SEC Chair Paul Atkins made this point very clear in an interview with CNBC, stating that the SEC is 'ready, willing, and able to issue regulatory rules addressing the same issues targeted by the CLARITY Act.'

There are trade-offs here. In the short term, regulations issued by an SEC led by Atkins are likely to be more crypto- and innovation-friendly than a bill forged through partisan congressional negotiations—and could even serve as a catalyst for the industry. However, the risk remains that a future administration could appoint a less sympathetic SEC chair who might reverse these rules.

Even so, I believe it will be difficult for the next SEC chair to reverse the broader momentum of the crypto industry. The sector is moving forward rapidly, and financial activities are migrating on-chain. BlackRock’s most profitable ETF is its Bitcoin ETF; giants like Nasdaq and JPMorgan are aggressively advancing asset tokenization; Visa, MasterCard, and Stripe are collaborating with Coinbase to launch stablecoin platforms; and Robinhood has already rolled out its own blockchain, interoperable with DeFi applications such as Uniswap and Morpho.

Meanwhile, crypto firms are integrating into the U.S. federal banking system. The Office of the Comptroller of the Currency (OCC) has already granted trust charters to Circle, Ripple, Paxos, and an increasing number of other companies. Countries and regions around the world—including the European Union, Japan, and even Russia—are racing to introduce crypto-friendly legislation.

Assuming the CLARITY Act fails and regulatory rules are instead issued by the SEC, the crypto industry would still have a development window of at least two and a half years—until a new administration potentially appoints a new SEC chair. By that point, no matter who holds the position, the SEC chair will be unable to shut the 'genie' back in the bottle.

In reality, Washington has always been slow to respond to major technological shifts, and the ultimate impact is often less severe than anticipated. In 1994, the House of Representatives passed a sweeping telecommunications reform bill by an overwhelming margin of 423 to 4, yet the bill stalled in the Senate and never reached a full floor vote. Sound familiar? But the internet didn’t wait. Over the next two years, Netscape launched and went public, Amazon and eBay were founded, and the number of websites grew exponentially. Congress eventually caught up: the Telecommunications Act of 1996 passed the Senate by a landslide vote of 91 to 5, laying the foundation for decades of industry growth. In hindsight, the two-year policy delay did not truly slow the industry’s progress.

Washington’s governance efficiency leaves much to be desired. It’s absurd, in my view, that lawmakers have failed to pass legislation that could simultaneously protect investors and foster innovation. However, this failure shouldn’t be used to judge whether crypto assets deserve a place in the global financial infrastructure. Crypto’s integration into finance is already a fait accompli. Today, the industry has accumulated enough momentum that, regardless of Congress’s outcome in the coming days, it will reshape the entire financial system over the next several decades.

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