TD Cowen 'increasingly pessimistic' on crypto bill, sees one-in-three odds of passage this year

The crypto market structure bill, known as the Clarity Act, is still stuck in the U.S. Senate, and chances of it passing this year are low, according to investment bank TD Cowen.

The recent compromise proposal on stablecoin yield is "not enough" to get the bill moving, Jaret Seiberg, managing director at TD Cowen’s Washington Research Group, said in a Monday note. Under that proposal, companies would not be allowed to offer yield on idle stablecoin balances, but they would still be able to give activity-based rewards when stablecoins are used.

A final stablecoin yield compromise text is expected to be released publicly this week by senators, and the Banking Committee is looking at the last two weeks of April for a potential markup.

Seiberg said there is still time for senators to find a bipartisan compromise on crypto market structure legislation that can secure the support of the crypto sector and banks. However, he reiterated that the window for legislating remains open until Congress departs for the August recess.

"Yet the signs are not pointing to success. Even senators who have historically been optimistic are curbing their enthusiasm," Seiberg said, citing a Politico report from Monday that said Sen. Mark Warner puts the odds of a bill at 50% to 60%, down from 80%.

"We see the prospects as lower. To us, there is a one-in-three probability for the Senate to advance a version of the Clarity Act that the House will pass," Seiberg wrote. "Action is most likely to come in late July just before the start of the August recess as we believe it will take the threat of the August recess to get senators to compromise."

Seiberg said the recent compromise proposal on stablecoin yield, pushed by Sens. Thom Tillis and Angela Alsobrooks, has been discussed before and is not new, and it may not satisfy either side.

"The problem is that this would discourage investors from using stablecoins as a way to invest excess liquidity, which is why the platforms like Coinbase would object. And for the banks, it is negative as it gives crypto platforms an incentive to find ways to use stablecoins for everyday purchases, which represents the real threat to core deposits," Seiberg said.

The only way the bill could pass is if Congress moves forward even without agreement from both sides, according to Seiberg. While that can happen sometimes, he said it is not common, which is why he remains pessimistic about the bill this year.

"We believe the only way Clarity becomes law is if Congress simply ignores the objections from Coinbase and the banks and enacts this compromise," Seiberg said. "Such an outcome is possible as Congress occasionally passes legislation simply to get it done. As this is the exception and not the rule, we remain pessimistic for action."