CLARITY Act limbo spooks institutions as Trump pushes rate cuts
The outlook for the CLARITY Act is keeping institutional capital on the sidelines, according to Bitwise CIO Matt Hougan. In his memo, Hougan argues crypto can handle either a clean legislative win or a clear failure, but struggles in the “in-between” state where regulatory certainty remains unresolved.
The CLARITY Act is designed to split jurisdiction between the SEC and CFTC and move from enforcement-led oversight to a statutory framework. It passed the US House 294-134 in July 2025 and advanced via a Senate Banking committee vote (15-9) on May 14. The Senate floor is the tougher path: Republicans hold 53 seats and need 60 votes, while only two committee Democrats supported the bill. Remaining friction points include DeFi protocol treatment and stablecoin rules.
Institutional risk appetite remains muted. Allocators are reportedly favoring AI equities at record levels instead of taking “regulatory tail risk.” Hougan frames the current setup as a contrarian bet: markets may shift from momentum/speculation toward revenue-driven investing, citing Hyperliquid as an example of protocols generating tangible fee flow.
Macro conditions are also weighing on risk assets. Bitcoin is down about 21% year-to-date, reinforcing a bear-market tone. Trump renewed calls for lower interest rates after highlighting a job report that beat expectations (payrolls +172,000; unemployment 4.3%). The Fed, however, is still priced for a hold this month (CME FedWatch ~96%). Energy inflation is a further constraint: Brent rose from the low-$70s to nearly $120 during the Iran-related escalation before easing to around $94, while US gasoline costs climbed.
Traders should watch whether the CLARITY Act’s uncertainty breaks toward passage or collapse, as that timeline may drive short-term volatility and longer-term allocations across Bitcoin and large-cap crypto.
Bearish
The central bearish driver is regulatory “limbo” around the CLARITY Act. Hougan’s core claim is that the market can better price a definitive outcome than a prolonged period of uncertainty—allocators delay exposure when jurisdiction and rules (especially for DeFi and stablecoins) remain unresolved. This aligns with the reported institutional preference for AI equities and the absence of fresh crypto inflows.
Macro also tilts risk assets lower: Bitcoin is already down ~21% YTD, while markets still expect a Fed hold despite Trump’s push for cuts (~96% probability). If energy inflation persists (Brent ~94 and gasoline higher), it undermines the easing narrative, keeping real-rate risk elevated.
In the short term, traders should expect volatility around legislative headlines and any signals about SEC/CFTC jurisdiction. In the long term, the bearish pressure may fade faster if uncertainty clears—either via CLARITY Act passage or a clear collapse—because then positioning can shift from rumor-driven momentum to revenue-driven fundamentals (e.g., fee-generating venues like Hyperliquid). Similar episodes in past crypto cycles show that clarity on regulation and policy expectations often triggers the next re-rating phase, but until that happens, the path of least resistance is cautious/defensive positioning.