Coinbase CEO Brian Armstrong Continues to Advocate for the Clarity Act. Here's the Most Likely Scenario For the Crypto Market.

On July 21, Coinbase Global (NASDAQ: COIN) CEO Brian Armstrong told CNBC that the Clarity Act had reached the "one-yard line." For holders of Ethereum (CRYPTO: ETH), XRP (CRYPTO: XRP), and Solana (CRYPTO: SOL), that final yard is very likely to be worth real money, both immediately after the bill passes (if it does), and in the years afterward.

However, the odds of its passage this year are just 30% by some estimates. So what happens to these coins if it passes, or if it gets punted to next year?

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This legislation would change the entire industry

The Clarity Act's consideration by Congress is just one of the new regulatory developments for crypto.

On March 17, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) jointly issued a guidance that classified Bitcoin, Ethereum, Solana, XRP, and a dozen other cryptoassets as digital commodities rather than securities. This put their regulation into the purview of the lighter-touch CFTC regime, rather than the SEC.

So if most of the crypto majors are already officially classified, why would a new statute change anything?

In short, because that joint SEC-CFTC ruling was just an interpretive guidance, not a law. A future set of regulators in those institutions could rewrite their guidance with a memo. Written into statute, the same regulations become a durable set of rules that financial companies can plan around, allowing them to commit a lot more capital than they would otherwise.

For an actor like Coinbase, there's also a lot of prestige at stake. Armstrong hasn't been shy about advocating for various elements of the Clarity Act. If it passes, there will be a piece of legislation that was crafted with a lot of input from him and Coinbase.

Aside from potentially helping to structure the rules in Coinbase's favor, the leadership that Armstrong is demonstrating by pushing for the Clarity Act will position his company to have the ear of Congress on future matters affecting the industry.

The likeliest path

Let's assume that the Clarity Act gets signed into law late this year or early next year, which is the most likely scenario.

If that happens, there probably won't be any immediate fireworks in the market. However, it would help the crypto bear market wrap up within a quarter of the bill's passage, as its passage will be a green light for institutional capital allocators who needed to wait for legal cover to start buying. Solana, XRP, and Ethereum would be some of the first stops those allocators would make when it came to parking their capital. All three are hubs for the segments that institutions are interested in right now, specifically asset tokenization.

Another scenario is that the Clarity Act doesn't pass, or is delayed significantly into later next year or beyond. In this scenario, the bear market drags on for a while longer than it would otherwise, and the recent signs of the market's momentum and early recovery would peter out and give way to more doldrums.

As things stand, the logjam preventing the bill's passage is the package of ethics rules aimed at government officials, including the president. The main points of the legislation, namely those regarding market structure and asset classification, are far less contentious.

Given that Congress just departed for its August recess, the crypto majors will most likely keep grinding sideways into the fall when the bill gets taken up again, assuming it is.

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 recommends Coinbase Global. The Motley Fool has a disclosure policy.