According to Matt Hougan, the chief investment officer at Bitwise, a failure to pass the CLARITY Act this week would leave the bill in a “walking dead” state but would not stop the crypto industry’s relentless advance.

In a blogpost published on Wednesday, Hougan noted that although many people, himself included, have labeled this a “make or break” week for the legislation, the reality is that the crypto sector has achieved too much progress to “go back in the bottle.”

“The reality is that Washington is always late to major technology shifts, and it has rarely mattered as much as people feared,” stated Hougan.

His remarks arrive as the Senate approaches an August 5 deadline to move the significant crypto market structure bill forward before its summer recess. Many are concerned that a failure to advance it this week could delay the bill until next year, as lawmakers shift their focus to the November midterm elections.

Legislative Hurdles and Waning Optimism

Pessimism about the CLARITY Act’s passage this year is growing among market observers. Galaxy Research, for example, lowered its projected probability of the bill passing in 2026 to just 30% in July. Meanwhile, Polymarket currently indicates a 23% chance of it being enacted into law this year, a sharp decline from 82% in February.

Greg Cipolaro, the global head of research at NYDIG, commented on July 24 that the most recent draft of the bill, while more thorough, still does not have adequate bipartisan backing.

“The central investor takeaway is that Republicans have produced a substantially more complete bill, but not yet one with a credible path to 60 votes,” Cipolaro explained.

Sources who spoke with Punchbowl News indicated that Senate Democrats plan to deny cloture for the crypto bill unless there are signs of progress from the White House on a bipartisan ethics agreement, as well as movement on illicit finance and stablecoin yield.

Potential Paths Forward

Hougan said a failure to pass the legislation now would place it in a “walking dead” state—stalled but not permanently defeated. He holds out some hope that the bill might pass in September or possibly even in December, during the lame-duck session when Congress reconvenes.

“Congress often bundles multiple bills into a year-end “omnibus” package, forcing legislators to vote on a single bill that includes things they like and things they hate. Maybe the Clarity Act can pass that way,” Hougan suggested.

A Regulatory Fallback

If the CLARITY Act does not become law this year, Hougan anticipates the industry will revert to the joint interpretation issued by the SEC and CFTC in March. This guidance classifies Bitcoin and other assets as digital commodities and supersedes the SEC’s 2019 staff guidance.

This stance was reinforced last week by SEC Chair Paul Atkins, who said his agency is “ready, willing, and able to come out with rules that address the same issues as CLARITY and other aspects of the crypto market.”

However, rules from the two regulators are not as durable as legislation. They are vulnerable to legal challenges or reversal by a future administration. Atkins himself conceded this point in March when the agencies released their joint interpretation.

“Only Congress can ensure that regulation in this area is future-proofed through comprehensive market structure legislation,” Atkins said.

Ryan Louvar, the chief legal officer at WisdomTree, has argued that the lack of legislation will continue to hinder the market, regardless of regulators' actions.

“A market cannot function well when its participants cannot tell in advance which agency’s rules apply to them,” Louvar said during a congressional hearing in July.

Despite these challenges, Hougan believes “crypto will be fine,” as the current regulatory framework would give the industry two and a half years to accelerate before a new administration could potentially appoint a new SEC.

“Washington is dysfunctional. It seems crazy to me that we can’t get our act together to pass legislation that would improve investor protections and spark new innovation,” Hougan reflected. “But it’s not a referendum on crypto’s validity as a pillar of the global financial infrastructure. That ship has long since sailed. At this point, crypto has enough momentum that it will reshape finance for decades, regardless of what happens in the next few days.”