Author: Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Chopper, Foresight News
If you're like me, you've had enough of the various discussions about the CLARITY Act. To be fair, the US Congress should pass this bill; if it becomes law, the crypto industry will benefit. The CLARITY Act is not perfect, but it is a decent piece of legislation. It can boost the US economy, protect investors, improve ethics safeguards, and help the US gain a competitive edge in the era of on-chain finance.
However, this landmark crypto legislation has been moving through the congressional review process since May 2025. Its origins can be traced back to the earlier FIT21 bill, which passed the US House of Representatives as early as May 2024—that's 804 days ago.
Over the past few months, many people, including myself, have seen this week as the critical make-or-break moment for the CLARITY Act. The reason is that the US Senate will begin its August recess this Friday, August 7th, and will not reconvene until September 14th. According to Senate rules, if a vote is to be held before the recess, senators must file a cloture motion by this Wednesday, August 5th, at the latest.
The prevailing view is that if Congress cannot vote on the bill before the August recess, it will likely die, as lawmakers will soon shift their focus to the November elections. Polymarket predicts the probability of the bill passing in 2026 is only 27%, down from 82% back in February of this year.
The best-case scenario for the crypto industry is the smooth passage of the CLARITY Act. If that happens, I expect the crypto market to enter a new bull run. But given the low probability of that outcome, I am outlining here what the market might face if the bill fails to pass.
First, the Bill Won't Truly Die
Let's start with the bad news: even if the CLARITY Act fails to pass this week, the matter won't be settled. The bill will enter a "zombie state"—not completely dead, but only inching forward with great difficulty.
As the August deadline approaches, rumors have already surfaced suggesting the bill could be put to a vote in September. There are even views proposing a delay until December, during the lame-duck session after Congress reconvenes (Note: A lame-duck session in the US refers to the period after the November congressional elections but before the new Congress officially convenes on January 3rd of the following year, during which the outgoing Congress continues to conduct business). The US Congress often bundles multiple bills into year-end omnibus packages, forcing lawmakers to vote on a package of measures that includes provisions they both support and oppose. Some hope the CLARITY Act could sneak through in this way. After the Wednesday deadline, expect continuous reports discussing the possibility of "attaching" the bill for passage this autumn or winter.
The negative impact of this is that the uncertainty surrounding the bill keeps many professional institutional investors on the sidelines. They are reluctant to allocate funds to crypto assets, only to see the bill fail and the market subsequently drop. Institutions prefer to wait for the situation to clarify before taking action.
If the bill fails this week, the most favorable scenario would be a further significant drop in the probability of its passage on Polymarket, at least into the low teens. If that happens, the market might experience brief volatility but would be poised for a rebound in the fall.
Second, the Crypto Industry Will Continue to Advance
More importantly, the crypto industry itself will not suffer a fatal blow.
Even if the CLARITY Act does not become law, the industry will find its own path forward. Last week, US Securities and Exchange Commission (SEC) Chairman Paul Atkins made this point very clear in a CNBC interview. He stated that the SEC is "ready, willing, and able to issue regulations to address the same issues as the CLARITY Act."
There are trade-offs here. In the short term, regulations issued by an SEC led by Atkins would likely be more friendly to the crypto industry and innovation than a bill born from bipartisan congressional bargaining, potentially even acting as a catalyst for the industry. However, the risk is that a future administration could appoint an unfriendly SEC chair who might overturn these rules.
Even so, I believe it would be difficult for any future SEC chair to reverse the momentum of the crypto industry. The industry is charging ahead, and financial services are migrating on-chain. BlackRock's most profitable ETF is its Bitcoin ETF; giants like Nasdaq and JPMorgan are aggressively pushing asset tokenization; Visa, Mastercard, and Stripe are collaborating with Coinbase on stablecoin platforms; Robinhood has launched its own blockchain that can connect to DeFi applications like Uniswap and Morpho.
Meanwhile, crypto firms are gaining access to the US federal banking system, with the Office of the Comptroller of the Currency (OCC) having granted trust charters to Circle, Ripple, Paxos, and a growing list of companies. Countries and regions around the world, from the European Union and Japan to Russia, are racing to enact laws favorable to the crypto industry.
The Genie is Out of the Bottle and Can't Be Put Back
Assuming the CLARITY Act fails and is replaced by SEC regulations, the crypto industry would have at least a two-and-a-half-year development window—until a new administration could potentially appoint a new SEC chair. By that point, no SEC chair, regardless of who it is, could put the "genie" back in the bottle.
The reality is that Washington is often slow to react to major technological shifts, and the ultimate impact is often not as severe as anticipated. In 1994, the House passed a major telecommunications reform bill with an overwhelming vote of 423 to 4, but the bill ultimately stalled in the Senate and never received a floor vote. Sound familiar? But the internet didn't wait. In the following two years, Netscape Navigator was released and went public, Amazon and eBay were founded, and the number of websites grew exponentially. Congress eventually caught up, passing the Telecommunications Act of 1996 in the Senate with a huge margin of 91 to 5—a bill that laid the foundation for decades of industry growth. In hindsight, the two-year policy delay didn't truly slow down the industry's development.
Washington's governance is inefficient. It seems absurd to me that a bill that could protect investors and encourage innovation is delayed from becoming law. But this should not be used to judge whether crypto assets are qualified to become part of the global financial infrastructure. Crypto becoming part of finance is already an established fact. Today, the crypto industry has gathered enough momentum that, regardless of what happens in Congress in the coming days, it will reshape the entire financial system for decades to come.
