TD Cowen: Midterms could stall CLARITY Act, test crypto's political clout

According to a recent policy brief from TD Cowen, shared with Bitcoin Magazine, the trajectory of Washington's digital asset agenda is contingent upon the upcoming midterm elections. Analyst Jaret Seiberg cautioned within the note that the likely election results might obstruct Congress's ability to pass the CLARITY Act within the subsequent two years. This proposed legislation is intended to establish regulatory standards for bitcoin and other digital assets, prompting the industry to invest $176 million across over 100 races to influence the outcome.

The report indicates that a Democratic victory across the board represents the most probable scenario, with prediction markets assigning Democrats a 90% probability of winning the House and a 62% chance of securing the Senate. TD Cowen views this outcome as the most unfavorable for the cryptocurrency market and the broader sector. Should this materialize, Senator Elizabeth Warren would assume the chairmanship of the Senate Banking Committee. Seiberg characterizes her as a skeptic regarding crypto, noting her prior opposition to the CLARITY Act, and anticipates she will conduct rigorous oversight of federal regulatory bodies. Nevertheless, Warren would be unable to prevent regulators from implementing policies that benefit the industry. Furthermore, since President Trump is expected to maintain a positive stance toward crypto, he would likely veto any legislation that curtails his regulators' authority, and Democrats would lack the necessary votes to override such a veto. Consequently, policy developments are anticipated to concentrate on areas such as stablecoins, perpetual futures, and tokenization.

A second potential outcome involves Democrats retaining control of the House while several key races in the Senate remain close enough for Republicans to prevail. In this situation, Representative Tim Scott would retain his position on the Banking Committee. TD Cowen considers this scenario a more favorable result for bitcoin because Representative Maxine Waters might exchange support for segments of the market structure bill in return for action on her other priorities and investor safeguards. Under this structure, detrimental legislation would be prevented from reaching the president's desk.

The least probable, yet most advantageous scenario for crypto, is a Republican victory across both chambers. Kalshi assigns Republicans a 10% probability of maintaining the House and a 35% probability of keeping the Senate. TD Cowen labels this the optimal path for crypto policy, although the degree of the margins holds significance. A more substantial Senate majority would increase the likelihood that leadership can advance the CLARITY Act in 2027 or 2028, allowing for a possible revival during the lame-duck period. Conversely, a slim majority would leave the bill stalled, given that Democrats continue to push for ethics provisions that the president opposes.

Historically, when the Senate previously blocked the bill, related stocks in the bitcoin sector experienced declines. To provide necessary context, the CLARITY Act aims to institute federal guidelines for digital assets. The House passed its version in July 2025 with a vote count of 294-134. Subsequently, the Senate Banking Committee endorsed its own version in May 2026 by a margin of 15-9, with two Democrats joining the Republicans. A vote on cloture on the Senate floor failed 49-50 on September 15. A point of contention is the ethics language sought by Democrats, which seeks to prohibit senior officials, including the president, from profiting from crypto ventures; Republicans and industry groups are resisting these restrictions. Another area of disagreement involves stablecoin yields, with each side asserting that the other is impeding forward movement, leaving the bill in limbo.

The ongoing legislative battle over the CLARITY Act highlights the dynamic interplay between political outcomes and the regulatory environment shaping the crypto industry.

Why it matters

The upcoming midterms will significantly impact the legislative path for the CLARITY Act, which is crucial for establishing federal rules for digital assets. The political outcome will determine whether crypto policy focuses on tokenization or faces legislative gridlock and regulatory uncertainty.