JPMorgan (JPM) said falling odds of the Clarity Act passing the U.S. Senate this year are a setback for crypto markets, warning that further delays could undermine one of the industry's biggest regulatory catalysts.
Prediction markets now imply just a 37% chance of the legislation passing before year-end after the Senate prioritized other bills ahead of its summer recess, the Wall Street bank noted. Negotiations remain deadlocked over ethics provisions, enforcement, DeFi, stablecoin yield and anti-money laundering rules.
“The longer the approval of the Clarity Act is postponed, the greater the threat to crypto markets from the growth of tokenization and blockchain-based applications eventually being absorbed by incumbent market infrastructure rather than accruing to public crypto networks,” analysts led by Nikolaos Panigirtzoglou said in the Wednesday report.
The Clarity Act would establish clearer oversight of digital assets by dividing jurisdiction between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), while creating a more predictable framework for crypto intermediaries, tokenization and decentralized projects.
The proposed act is widely viewed as a cornerstone for the next phase of institutional crypto adoption. By establishing clear rules for digital assets, the legislation could give banks, brokers, exchanges and asset managers greater confidence to invest, launch products and build market infrastructure, accelerating the migration of trading and liquidity to regulated U.S. venues.
JPMorgan analysts said the legislation would encourage institutional investment, boost U.S.-regulated trading and lower barriers for banks, exchanges, custodians and market makers.
Some of those trends are already emerging, the bank said, citing Citadel Securities' $400 million investment in Crypto.com and the CFTC's approval of the first U.S.-regulated perpetual crypto futures contracts.
The report cautioned, however, that parts of the current draft could deter institutional participation by allowing some tokenized securities and derivatives trading outside SEC or CFTC oversight and imposing lighter anti-money laundering requirements than those faced by traditional financial firms.
Investment bank Jefferies warned that the Clarity Act still faces significant hurdles despite clearing the Senate Banking Committee, according to a report last month.
Read more: Jefferies warns of crypto market volatility as Clarity Act faces Senate test