Two Catalysts Hitting Crypto This Week
Crypto is heading into its biggest week ever, with two events driving where prices go for September through December. The market expects both to be bearish.
The first is the Senate vote on the Clarity Act. Leading prediction markets put 76% odds that Clarity fails to pass this year. The second is the Fed's FOMC decision, where prediction markets show 87% odds of the first rate hike in about three years - a 25 basis point hike, with an 85%+ chance. Both are widely seen as bearish for crypto, and both look priced in.
The Bullish Counter-Case
Most analysts are explaining why the week breaks bearish. The opposite case gets almost no attention: the Clarity Act passes and the Fed holds rates steady. With everyone expecting Bitcoin (BTC) and Ethereum (ETH) to fall, and many predicting Bitcoin is ready to turn over, the surprise could run the other way.
On rates, remember why Kevin Warsh was appointed. Trump picked Warsh on purpose. Not hiking rates before the midterms would likely be a condition for that nomination. It is hard to believe a handpicked Fed chair hikes rates the month before midterms. The "obvious trade" priced into the market may not be so obvious.
Inside the Clarity Act Fight
The mainstream media is now hyping the Clarity Act vote, which is unusual. If passed, the bill lets regulated money - retirement funds, pensions, and bank-held assets from institutional investors - be invested into cryptocurrency. Banks would shift trillions into the market overnight. People holding even a little crypto could become millionaires overnight. The bill would also create temporary cheaper money in the economy while the administration works to bring diesel prices back down.
Sixty votes are needed to advance the Clarity Act (the digital asset market clarity act) in the Senate. At the end of last week, Trump met with advisers about changing the ethics language in the bill to reach 60 votes; the meeting outcome was not disclosed. Senate Democrats were set to meet on a Sunday night to discuss the act, with ethics as the main sticking point - both sides remain far apart on ethics.
The key move is an amendment from Senators Tillis and Gallego, a compromise targeting conflict-of-interest and crypto-entanglement rules. Its main parts are enforcement expansion and addressing official entanglements. With the vote set for Tuesday at 2:15, the White House will have to weigh in on the Tillis-Gallego proposal to bridge the gap. There has been little comment from the White House in the five or six weeks since that proposal first arrived there. Senate Majority Leader Thune is committed to keeping the vote on Tuesday. Progress would show as movement from the White House and back-and-forth paper from Senate Democrats, with Senator Gallego leading those talks. You cannot get 60 votes without an ethics resolution.
The Warnings and the Backup Plan
Coinbase's (COIN) vice chair and head of corporate affairs called out the Senate directly: if the bill fails, there are no new consumer protections, no new law enforcement tools, and no new framework to address illicit finance. After a year of bipartisan negotiation, the Senate faces a stark choice - adopt comprehensive federal oversight or keep the status quo. His message: stop talking and start voting. A broader coalition of law enforcement, Wall Street heavyweights, and millions of crypto voters has come together behind the bill.
If Clarity fails - which some still see as the likely outcome - it is not the end. Coinbase's (COIN) CFO says there is a viable path through the SEC and CFTC. There were always three routes to clarity: Congress, the agencies, or the courts. When Coinbase was under attack by the SEC, it pursued clarity through the courts. SEC Chair Atkins and CFTC leadership have been pushing rulemaking forward at the agency level, so new products and services could still come via the agencies. Clarity passing is the best case; the agency path is a close second.
Voices and Timing
Senator Cynthia Lummis and Trump would likely blame Democrats if the bill fails. Crypto advocate Mike Novogratz says it is not dead yet, negotiations continued over the weekend, and it could still pass. White House crypto adviser Patrick Witt said it would be a bad day to be a "Clarity Act doomer" this week, pointing at the popular view that it will fail. Solana Policy Institute President Kristen Smith says the act could still come together very quickly - almost no time is left, but some time remains.
If it passes, in hindsight it will look obvious: Trump, BlackRock (BLK), Fidelity, Franklin Templeton (BEN), the SEC, the CFTC, Goldman Sachs (GS), Charles Schwab (SCHW), JP Morgan (JPM), and Citibank (C) all want Clarity to pass.
Clarity is not the only crypto bill this week. The 15th is the Clarity Act vote; the 16th brings a House markup on pro-crypto tax rules. This would be the first time crypto tax legislation moves from being introduced as a bill to a formal committee vote.
