Bernstein says crypto markets could experience another decline if the CLARITY Act does not pass this year, although the brokerage expects U.S. regulators to accelerate efforts to establish clearer rules for digital assets.

In a Monday research note, Bernstein said the legislation’s chances have weakened as the Senate’s remaining time before recess continues to narrow. The analysts noted that lawmakers have already addressed several key disagreements, including the treatment of stablecoin yields, but the bill still faces an uncertain path forward.

“CLARITY is the most significant crypto market structure proposal in U.S. history, but the likelihood of approval in 2026 appears to be slipping,” analysts led by Gautam Chhugani wrote.

The firm said failure to pass the bill would likely trigger a short-term negative reaction across cryptocurrency markets. However, Bernstein expects the impact to be limited, arguing that the SEC and CFTC could accelerate regulatory actions under the Trump administration’s Project Crypto initiative.

The CLARITY Act has become a major focus for the crypto industry, with supporters arguing that it would provide a clearer regulatory framework for digital assets, reduce uncertainty, and encourage wider institutional adoption. Analysts believe the legislation would give banks, asset managers, and exchanges greater confidence to invest in blockchain infrastructure and expand their digital asset offerings.

Bernstein expects regulators to continue moving forward on important areas such as defining token classifications, establishing DeFi guidelines, creating clearer self-custody rules, and introducing exemptions to support innovation in token issuance. The firm also anticipates continued growth in tokenization, crypto derivatives, and prediction markets.

According to the report, the CLARITY Act remains strategically important because it would offer a permanent regulatory foundation for the crypto sector. The legislation could clarify the responsibilities of securities and commodities regulators, encourage financial institutions to build blockchain infrastructure, and provide a long-term framework for decentralized finance and digital assets beyond any single administration.

Even if the bill stalls, Bernstein believes the crypto industry will continue to maintain political momentum heading into the U.S. midterm elections. The brokerage expects the current market weakness could begin to recover in late Q3 or early Q4 as investors look toward potential policy support from the White House.

For publicly listed crypto companies, a delay in the legislation would likely leave existing stablecoin rules unchanged.

Bernstein said Coinbase (COIN) would likely continue offering rewards on idle stablecoin holdings, while Circle (CRCL) would remain unable to directly provide yield as an issuer but could continue earning through distribution partnerships. The firm added that renewed growth in USDC supply would be a key driver for stronger performance from both companies.

JPMorgan similarly warned last week that weaker prospects for CLARITY Act approval this year could hurt crypto sentiment, saying prolonged delays may remove one of the sector’s most important regulatory catalysts.