The Clarity Act Fails. Could It Be Time to Buy Crypto Stocks?

The Clarity Act failed to move out of the Senate on Tuesday but crypto regulation could move without the key bill. (Dreamstime)

Key Points

• Bitcoin and other cryptocurrencies fall Wednesday after the Clarity Act, a key crypto regulation bill, fails to pass the Senate on Tuesday.
• Morgan Stanley analyst Felix Stratmann says the near-term odds of the bill’s enactment have fallen sharply, but the legislation isn’t dead.
• The analyst notes that the SEC and CFTC can still advance digital-asset regulation through agency rulemaking in the absence of the legislation.

Bitcoin and other cryptocurrencies fell Wednesday after the Clarity Act, a key crypto regulation bill, failed in the Senate on Tuesday, but Wall Street doesn’t view this as a fatal blow to crypto-related stocks.

The Clarity Act has been one of the crypto industry’s top legislative priorities, and executives had been pushing for the bill to become law this year. With the bill failing to advance out of the Senate, the question for investors now is what it means for the future of cryptocurrency-related stocks.

“The act is not dead, but near-term odds of enactment have fallen sharply,” said Morgan Stanley analyst Felix Stratmann. “Agency rulemaking can continue to support digital-asset development in the absence of legislation.”

The Morgan Stanley analyst added that without the Clarity Act, the Securities and Exchange Commission and the Commodity Futures Trading Commission, or CFTC, can still advance digital-asset regulation.

Bitcoin has fallen 1.4% over the past 24 hours to $75,931, according to CoinDesk. Fellow cryptocurrencies Ethereum and XRP declined 3.1% and 8%, respectively.

Shares of Strategy , the largest corporate holder of Bitcoin, declined 0.3% in premarket trading on Wednesday after ending the previous session down 5.4%. Coinbase Global and Robinhood Markets each rose around 0.3% after selling off on Tuesday.

Shares of cryptocurrency exchange Gemini Space Station dropped 0.6%. Stablecoin issuer Circle Internet Group dropped 1% in the premarket session after falling more than 11% on Tuesday.

“We see CLARITY’s failure to advance as a negative headline that could weigh near-term on the shares of Coinbase, Gemini Space Station, and to lesser extent Robinhood following the recent uplift on improving legislative optimism,” Stratmann wrote.

“However, the supportive regulatory backdrop persists, with SEC/CFTC rulemaking expected to provide greater clarity across digital asset issuance, custody, trading, and onchain market infrastructure, supporting continued development of the onchain ecosystem and broader adoption of tokenized finance over time,” the analyst added.

Morgan Stanley wasn’t alone in that view.

Needham analyst John Todaro noted the Senate vote essentially ends market structure legislative work for the year but that its “business as usual for crypto exchanges.”

The analyst added that the Clarity Act wouldn’t have meaningfully benefited business for exchanges and broker platforms. Those stocks include Coinbase and Robinhood.

Todaro noted that the selloff on Tuesday could even be a chance for investors to acquire Coinbase, Robinhood, and other sector stocks on the cheap.

“Nothing about the failed vote changes the current underlying businesses, and we view this as a buying opportunity,” Todaro wrote.

Write to Kit Norton at kit.norton@barrons.com

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