Trillions on Sidelines: The 36% Odds and $6T Deposit Flight

The market is pricing in a high probability of legislative failure. As of this week, prediction markets like Kalshi were assigning only a 36% chance of the CLARITY Act's passage by June. That figure, coupled with a 22% chance for March, reflects a clear lack of confidence in a near-term breakthrough. This skepticism is a direct bet against the White House's stated goal of getting the bill to the president's desk this spring.

Treasury Secretary Scott Bessent has directly attributed current market volatility to this political deadlock. He labeled the situation as "self-induced" volatility, pointing to a faction of crypto firms blocking the bill as a key source of instability. His comments underscore the view that clear regulation is not just a policy goal, but a necessary catalyst for restoring investor confidence in a market that has seen major assets shed half their value.

The stakes are measured in trillions. The White House has repeatedly emphasized that there are trillions of dollars in institutional capital on the sidelines waiting to get into this space. This liquidity is frozen, awaiting the regulatory unlock that the stalled legislation promises. The market's low odds for passage suggest this vast capital will remain idle for the foreseeable future, unless the next round of negotiations can bridge the critical gap on stablecoin yields.

The $6 Trillion Deposit Flight Sticking Point

The core of the legislative deadlock is a single, high-stakes question: can stablecoins offer interest-like rewards? This issue has become a separate, unresolved fight that now threatens to hold up the entire market structure bill. Banking executives, led by figures like Bank of America's CEO, have issued stark warnings that allowing these rewards would trigger a massive deposit flight. They cite a study projecting $6 trillion of deposits could leave the banking sector for stablecoins if the loophole is not closed.

The mechanism is clear. While the 2025 Genius Act bans direct interest payments, the industry has found workarounds. Platforms like Coinbase pay rewards to users who keep their USDC balances on the exchange, with the issuer Circle effectively subsidizing that yield through custody fees. To banks, this is functionally equivalent to interest and a direct threat to their low-cost deposit funding, which supports lending and margins. The risk is not theoretical; Standard Chartered has modeled a potential $500 billion deposit withdrawal from US banks by 2028, with regional lenders most exposed.

This deposit competition is the central fault line. The White House is pushing for a deal by March to avoid a legislative cliff, but progress is stalled. The dispute has hardened into a fight over whether stablecoins should be treated as deposits, especially when they deliver yield. Without a resolution, the $6 trillion in institutional capital on the sidelines will remain frozen, and the market's volatility will persist.

Catalysts and Flow Watchpoints

The immediate catalyst is a White House meeting next week to resolve the stablecoin yield deadlock. This third negotiation round is critical; a successful compromise would clear the path for Senate reconciliation and a cloture vote before the political calendar shifts. The window for passage is now "rapidly closing," with the White House aiming to get the bill done before the November midterms consume all legislative oxygen.

Watch for any shift in the market's implied passage probability on prediction platforms. As of this week, Kalshi priced only a 36% chance of the bill's passage by June. A positive outcome from next week's talks could materially boost these odds, providing a direct signal of reduced regulatory risk. For now, the low probability reflects a market betting against a near-term breakthrough.

The bottom line is a race against time. The White House has held multiple meetings, but progress remains stalled on the core deposit flight issue. A win-win compromise is needed to unlock the trillions of dollars in institutional capital on the sidelines. Without it, the market's volatility and the freeze on major investment will persist.