JPMorgan analysts said recent U.S. regulatory actions partly offset the negative effects of the Senate's failure to advance the Clarity Act. The Senate failed to advance the legislation last month. The analysts consider passage this year unlikely and said the legislation may return in 2027.
JPMorgan analysts led by Nikolaos Panigirtzoglou said in a Wednesday report that agency measures can encourage institutional participation in crypto in the near term. However, the analysts said only legislation would make the framework more durable over the longer term. The analysts expect elevated political and legal risk premiums to persist until comprehensive market structure legislation passes. The analysts warned that a Democrat winning the White House could lead to agency actions being reversed in as little as two years.
Crypto market sentiment has nevertheless stayed relatively positive. Attention currently centers on measures the Securities and Exchange Commission, Commodity Futures Trading Commission and Office of the Comptroller of the Currency can take to facilitate institutional entry into crypto.
The SEC introduced a five-year "Innovation Exemption" for tokenized stocks last month. The analysts noted that eligible tokens would have to preserve the underlying shares' financial and voting rights. The analysts said synthetic tokens would be ineligible, while trading platforms would face restrictions. Companies could refuse to allow tokenization of their shares.
The analysts said more companies have recently chosen to reject tokenization, weakening sentiment toward application tokens such as ether as ETF flows and futures positioning weakened. However, the analysts said ETF flows and JPMorgan's futures-position proxy had both risen in the initial period after the SEC's September 15 announcement.
The CFTC is exploring how regulated U.S. platforms could offer leveraged crypto trading. The analysts said the initiative remains preliminary and is unlikely to advance before 2027. The analysts said activity moving onshore can increase liquidity and improve price formation. The analysts said that shift can eventually help develop more liquid regulated venues that institutions are more likely to use.
The OCC has awarded national trust charters to an increasing number of stablecoin issuers and digital asset companies. The charters bring activities including custody, reserve management and issuance under federal supervision. The Independent Community Bankers of America has sued the OCC over aspects of the approvals. The analysts acknowledged the legal challenges but said granted charters are generally difficult to reverse in practice.
The Financial Accounting Standards Board is considering whether companies should be allowed to record certain stablecoins as cash equivalents on company balance sheets. The proposal's comment period ends on November 19. The analysts said adoption would encourage stablecoin use beyond crypto trading, including payments and liquidity management by companies and institutions.
Last month, the analysts also said agency rules could improve clarity for crypto companies and attract more capital to the sector. However, the analysts said those rules would be less durable than legislation enacted by Congress.
JPMorgan on Crypto Regulation: Agency Actions Offset Clarity Act Failure, Risks Remain
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Summary
JPMorgan analysts said recent U.S. enforcement actions partially offset the setback from the Senate’s failure to pass the Clarity Act. Agency moves, including the SEC’s Innovation Exemption and CFTC’s look at leveraged trading, may help crypto adoption in the short term. However, durable rules still need legislation. Risks linger, especially under a potential Democratic CFT agenda. The OCC’s trust charters for stablecoins and FASB’s accounting proposal were also noted as key agency steps.
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