What is the CLARITY Act and Why Does it Matter for Crypto

Key Takeaways

• Ripple CEO Brad Garlinghouse sees a 90% chance the CLARITY Act passes by April, potentially ending years of regulatory uncertainty for U.S. crypto markets.
• Formal classification of XRP as a digital commodity, rather than a security, would unlock significant institutional capital and accelerate adoption through new spot ETFs and banking integrations.
• While bullish price targets range from $5 to $100, the bill faces hurdles, primarily the contentious debate over stablecoin yield, which could still delay its passage.

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What is the CLARITY Act and Why Does it Matter for Crypto?

The CLARITY Act, a comprehensive market structure bill, aims to finally establish a clear regulatory framework for digital assets in the United States. Its passage would fundamentally redefine how cryptocurrencies are treated, resolving the long-standing jurisdictional tug-of-war between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). This legislation is designed to classify digital assets as either "Digital Commodities" under the CFTC or "securities" under the SEC, providing much-needed statutory certainty for the industry.

This distinction is not merely semantic; it carries profound implications for market participants. For digital commodities, the regulatory burden is significantly lighter, encouraging banks to act as custodians and enabling conservative institutions like pension funds and sovereign wealth funds to enter the space. The bill also proposes treating crypto ETFs like stablecoins, allowing for real-time, 24/7 settlement, a significant upgrade from traditional asset settlement times. This shift could unlock trillions of dollars currently sitting on the sidelines, waiting for a clear legal environment.

The House of Representatives passed a version of the CLARITY Act in mid-2025, but it has since stalled in the Senate Banking Committee. The primary sticking point revolves around stablecoin yield provisions, with traditional banks expressing concerns that allowing rewards on stablecoin holdings could lead to deposit flight from savings accounts. Despite these disagreements, the White House has actively pushed for a negotiated resolution, with recent meetings between banking and crypto leaders signaling a strong desire to move the bill forward.

Ripple CEO Brad Garlinghouse recently expressed high confidence, stating there's a 90% probability the CLARITY Act will pass by April 2026. This optimism is echoed by prediction markets, which also show a 70-80% chance of the bill passing soon. Such a legislative breakthrough would replace years of fragmented oversight and outdated rules with clear, enforceable guardrails, protecting investors, fostering innovation, and strengthening national security by bringing digital asset markets onshore under robust U.S. oversight.

How Would the CLARITY Act Specifically Benefit XRP?

The CLARITY Act's passage would mark a decisive turning point for XRP, formally codifying its status as a digital commodity under federal law. This distinction is paramount, building upon Ripple's prior court victory in August 2025, which confirmed XRP is not inherently a security when traded on secondary markets. While that ruling provided some legal clarity, a federal law would lock in this status, removing the single largest barrier that has prevented major financial institutions, asset managers, and payment providers from fully integrating XRP into their operations.

The immediate practical consequence would be a wave of institutional re-engagement. Spot XRP ETFs, which launched in late 2025 and have already absorbed over $1.3 billion in their first 50 trading days, are poised for significantly larger allocations. Compliance departments at major financial institutions have been cautious without statutory clarity, but a passed CLARITY Act would provide the unequivocal green light they need to commit serious capital. This influx of institutional demand could dramatically boost XRP's liquidity and market depth.

Beyond ETF inflows, the deeper opportunity lies in Ripple's core business: cross-border payments and liquidity management. Ripple’s On-Demand Liquidity (ODL) service utilizes XRP as a bridge currency to settle international transactions in seconds, a stark contrast to the days-long settlement times of traditional systems. If U.S. banks can legally hold and transact in XRP under a clear federal framework, and if Ripple secures the Federal Reserve master account it is pursuing, XRP would transition from a speculative asset to functional financial infrastructure.

This regulatory certainty would enable U.S. banks to integrate XRP directly into their payment rails, leveraging its speed and efficiency for global transactions. Ripple has already invested nearly $3 billion in acquisitions since 2023, expanding into custody, prime brokerage, and treasury management, all in anticipation of this regulatory shift. The CLARITY Act would provide the missing piece, allowing these strategic investments to fully materialize into widespread adoption within the traditional financial system.

What Are the Bullish Price Targets for XRP if the Bill Passes?

If the CLARITY Act passes, analysts believe XRP is dramatically underpriced relative to the regulatory clarity it would unlock, with current trading around $1.45. The base case scenario centers on price targets ranging from $5 to $10. Standard Chartered's Geoffrey Kendrick, for instance, has a 2026 target of $8, implying over 300% upside from current levels. This thesis rests on the convergence of XRP's formal classification as a digital commodity and the subsequent surge in institutional allocations to spot XRP ETFs.

More bullish projections go further, suggesting $15 to $30 is achievable if the CLARITY Act passes and Ripple’s Federal Reserve master account application comes through by late 2026. These scenarios envision full Tier-1 bank adoption and domestic payment rail integration, transforming XRP into a core component of the U.S. financial system. The most extreme scenarios, projecting prices above $100, assume XRP becomes the primary liquidity layer for the entire U.S. banking system, though these remain highly speculative and depend on unprecedented levels of integration.

The macro trend for XRP, particularly with structural shifts towards utility-driven value, points toward progressive valuation milestones of $8, $13, and ultimately the $27 zone targets as global settlement adoption scales. This isn't about short-term price fluctuations but a long-term structural revaluation. The current market capitalization of XRP stands at $87.71 billion, with a 24-hour volume of $68.19 million. Significant institutional inflows post-CLARITY Act could easily propel these figures much higher.

Consider the broader context: the CLARITY Act would put XRP on the same regulatory footing as Bitcoin and Ethereum, assets that have seen massive institutional interest and ETF inflows. With its unique legal clarity already established through court rulings, XRP is uniquely positioned to capitalize on this legislative shift. Corporate treasurers are already exploring stablecoins and cross-border payments; what they need are federal guardrails before deploying serious capital, which the CLARITY Act aims to provide.

What Are the Key Roadblocks and Bearish Considerations?

Despite the optimism from Ripple's CEO, the CLARITY Act faces significant roadblocks that could delay or even derail its passage. The most contentious issue is the stablecoin yield provision, which has created a deep ideological dichotomy between traditional banks and cryptocurrency companies. Banks are vigorously lobbying for a ban on stablecoin interest payments, arguing that allowing such rewards would drain deposits from traditional savings accounts, impacting their lending capacity and potentially leading to financial instability.

Conversely, crypto leaders contend that offering rewards is essential for U.S. companies to remain competitive on the global stage and to prevent innovation from moving offshore. This stalemate has already caused the Senate Banking Committee to delay markup sessions and has even led major crypto players like Coinbase to withdraw support from previous versions of the bill. While the White House has convened multiple meetings to broker a compromise, reports suggest no clear resolution has been reached on this specific issue, with a March 1 deadline looming for negotiations.

Another bearish consideration is the potential for continued delays in the legislative process. The Senate rejected an earlier version of the bill on January 16 over the stablecoin yield dispute, casting uncertainty on whether it will be legislated before the U.S. mid-term elections. Every month of Senate delay is a month institutional capital stays on the sidelines, hindering XRP's potential for widespread adoption and price appreciation. The current 52-week range for XRP is $1.12 to $3.67, reflecting the ongoing uncertainty.

Furthermore, XRP faces growing competition from other digital assets and upgrading legacy systems. Stablecoins, including Ripple's own RLUSD, and improved traditional systems like SWIFT, are constantly evolving. Sceptics also point to declining monthly transaction volumes on the XRP Ledger over the past two years, suggesting that even with regulatory clarity, the underlying utility and adoption might not meet the most bullish expectations. These factors could cap XRP's upside, even if the CLARITY Act eventually passes.

What Does This Mean for Investors and What Should They Watch For?

For active traders and long-term investors in XRP, the CLARITY Act represents a pivotal moment, but the path forward is not without its nuances. The immediate focus should be on legislative developments in Washington. The Senate's progress on the stablecoin yield debate, particularly around the March 1 negotiation deadline, will be a critical indicator. Any breakthrough or continued impasse will directly influence the timeline for the bill's potential passage by April.

Investors should monitor statements from key policymakers and industry leaders, as well as the outcomes of any further White House meetings. A successful compromise on stablecoin yield would signal strong momentum, potentially leading to a swift committee vote and full Senate debate. Conversely, a prolonged stalemate could push the bill past Garlinghouse's April prediction, extending the period of regulatory uncertainty and potentially dampening market sentiment for XRP.

Beyond legislative headlines, watch for concrete signs of institutional adoption. This includes increased inflows into spot XRP ETFs, announcements from major banks regarding XRP integration, or progress on Ripple's application for a Federal Reserve master account. These real-world utility developments, rather than just speculative trading, will be the true drivers of XRP's long-term value appreciation. The current XRP price of $1.45 and its 50-day average of $1.78 and 200-day average of $2.35 suggest it is trading below recent averages, indicating a potential discount if the regulatory catalysts materialize.

Finally, investors should consider their risk tolerance. While the upside potential is significant if the CLARITY Act passes and adoption accelerates, the risks of legislative delays or failure remain. Diversification and a clear understanding of XRP's role in a broader crypto portfolio are essential. The current environment calls for a balanced approach, acknowledging both the transformative potential of regulatory clarity and the inherent volatility and political complexities of the digital asset market.

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The CLARITY Act stands as a critical juncture for XRP and the broader U.S. crypto market. While Ripple's CEO is highly optimistic about its passage by April, investors must remain vigilant, tracking legislative progress and concrete adoption metrics. The coming months will determine if regulatory clarity finally unlocks XRP's full potential as a foundational digital commodity in the global financial system.

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