The U.S. Senate's inability to pass the Clarity Act this year has left the cryptocurrency market facing significant uncertainty. Bernstein analysts warn that this legislative stall could trigger an immediate selloff in digital assets like Bitcoin.

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A looming selloff for Bitcoin and digital assets

The prospects for the Clarity Act passing through the Senate have deteriorated as the legislative session nears its recess, according to a Monday report from Bernstein. Analysts led by Gautam Chhugani noted that while the bill had resolved several contentious issues, including stablecoin yield rules, the lack of progress could weigh heavily on markets in the near term.

This sentiment echoes a warning from JPMorgan (JPM) last week, which described the fading prospects of the bill as a major setback for the industry. Despite these immediate fears, Bernstein suggests the current market downturn might conclude by late third or early fourth quarter, potentially aided by further policy support from the White House.

The SEC and CFTC's Project Crypto pivot

Even without the Clarity Act, U.S. regulators are expected to increase their activity through the Trump administration's Project Crypto initiative.. As Bernstein reported, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) will likely accelerate rulemaking to fill the legislative void.

This regulatory push is expected to focus on critical areas such as token classifications, decentralized finance (DeFi) guidance, and self-custody rules.. Furthermore, analysts expect regulators to continue supporting tokenization , crypto derivatives, and prediction markets through these administrative channels rather than through new laws.

Coinbase and Circle's stablecoin status quo

The failure to pass the bill ensures that existing regulations for stablecoins will remain in place for major industry players. For Coinbase (COIN), this means the company can continue offering yield on idle stablecoin balances. Conversely, Circle (CRCL) will remain unable to offer such yields directly as an issuer, though it may continue sharing distribution economics with its partners.

For both companies , the path to renewed momentum depends on specific market drivers. the Bernstein report identified a recovery in USDC supply growth as the key catalyst for renewed strength in both Coinbase and Circle stocks.

Can Project Crypto replace permanent legislative certainty?

While rapid rulemaking under Project Crypto offers a potential workaround, several questions remain regarding the long-term stability of the sector. It is unclear if administrative guidance from the SEC and CFTC can truly replicate the permanent regulatory certainty that the Clarity Act was designed to provide regardless of future political administrations.

Furthermore, the industry still lacks a definitive, legally codified division between securities and commodities oversight. It also remains to be seen if the political influence of the crypto industry will be sufficient to push the legislation through in 2026, or if the industry will be forced to rely indefinitely on the shifting priorities of federal agencies.