The Chances of the Clarity Act Passing This Year Are Now 50/50. Here's the Most Likely Scenario for the Crypto Market in 2026.

The odds of Congress passing the crypto regulation bill, the Clarity Act, are down to a coin toss. The bill would distinguish digital commodities and securities, and its fate will likely be decided in the next few weeks. When that happens, it will probably determine whether the crypto bear market ends this year or extends into 2027.

Let's game out a couple of scenarios to describe what could happen.

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What the bill does

Though they're much clearer than in yesteryear, U.S. crypto rules today are a patchwork of enforcement actions and interpretive releases that a future administration could rewrite on a whim.

The Clarity Act would create a framework and make it into statute, sorting tokens into three buckets: digital commodities like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) to be regulated by the Commodity Futures Trading Commission (CFTC); fundraising tokens to be regulated by the Securities and Exchange Commission (SEC); and payment stablecoins to be overseen by banking regulators. Codifying those distinctions is the difference between whether a bank can custody an asset or whether it's too risky to touch from a compliance standpoint.

The House cleared its version of the bill last July, and the Senate Banking Committee advanced its version on May 14. If it isn't passed before the August recess, the path to passing it at all this year narrows to September, and then to right after the midterms.

There are two paths here

If the bill passes, expect a short-lived pop in crypto majors, followed by a much longer tailwind as a result of financial institutions onboarding more of their capital to blockchains and integrating more of their systems and activities with the crypto sector. The crypto bear market might even end overnight.

In particular, real-world asset (RWA) tokenization -- the process of putting Treasuries, private credit, stocks, and many other types of asset on a blockchain as a crypto token for the purpose of trading or management -- has grown from about $12 billion in early July 2025 to nearly $32 billion today, all without a federal statute. Give institutional allocators that statute, and there will likely be big inflows to the chains that are already leaders in tokenized assets, like Ethereum, Solana (CRYPTO: SOL), and XRP (CRYPTO: XRP), among others. The inflows will likely coincide with the minting and onboarding of more stablecoin capital, which could then serve to stimulate the ecosystems of those leaders even further.

Ironically, even though it won't really be directly affected by any of this, it's also highly probable that Bitcoin will finish its bear phase and begin rising once again, purely by virtue of its role as the bellwether of the crypto sector. Similarly, despite not being directly exposed to the capital inflows, in this scenario, the green shoots that are currently forming would start to grow with gusto, attracting attention and giving the market an idea of where the next emerging segments within crypto are going to be.

The other possibility is that the Clarity Act will not pass.

If it fails, the market will probably not crater, though a small dip is to be expected. The more likely outcome will be that the bear market continues, and the wind is taken out of the sails of some of the coins that are currently trending toward recovery. Coins that are angling for institutional capital the most aggressively, like XRP, will suffer more.

One uncertainty will be whether the bill has a shot at passing in 2027, or whether there are negotiating deadlocks that preclude any progress. The latter scenario would obviously have a much more detrimental and longer-term impact, but the former might not have much of an effect at all.

That leaves investors in a pickle. Crypto majors are priced at deep discounts relative to the peak of the last bull cycle, but if there's no new legal or regulatory framework on the way, it's difficult to see how their valuations could be viewed as cheap, so it's hard to have strong conviction about buying them. At the same time, those same low valuations could rebound if legal clarity arrives.

For most, that means the best approach for the moment is to slowly accumulate assets that are already working fine without any new legislation, like Bitcoin, and to stay cautious with most of the rest.

Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.