The Sept. 15 cloture vote has 10% odds. XRP sits at $1. Ripple already won its SEC case. But the victory that holders treat as permanent was a district court ruling, not a statute, and the next Congress may not be friendly.
Summary
- Polymarket prices the CLARITY Act’s 2026 passage at roughly 20%, while Galaxy Digital and the Solana Policy Institute both assign 10% odds before the midterms, making failure the base case heading into the Sept. 15 cloture vote.
- XRP trades at $1.01 with a market capitalization of $63 billion, down 66.8% from its July 2025 high of $3.65, placing the token at the cost basis of holders who entered during the post settlement rally.
- The 2023 Torres ruling that programmatic XRP sales on exchanges are not securities remains a district court decision that has never been tested at the appellate level, leaving Ripple’s core legal shield one challenge away from reversal.
- Ripple’s planned IPO, its RLUSD stablecoin expansion, and the seven pending XRP spot ETF applications all depend on regulatory clarity that currently exists only as judicial precedent, not legislation.
- SBI Holdings reaffirmed a $41.2 billion exposure to Ripple equity in its latest disclosure, providing a floor of institutional commitment, but that floor was sized for a world where the CLARITY Act passes.
The crypto industry has spent the past six months treating the Digital Asset Market Clarity Act as the event that would settle XRP’s regulatory status for good. Prediction markets peaked at 82% in February. Ripple’s CEO attended the Wyoming Blockchain Symposium last week to talk about financial infrastructure as though the legal framework were already in place. Seven asset managers filed applications for XRP spot ETFs, each citing the expectation that Congress would resolve the jurisdictional questions the SEC had spent years litigating.
That expectation is collapsing. Galaxy Digital cut its passage estimate to 10% on August 14. The Solana Policy Institute’s CEO used the phrase “August recess purgatory” to describe the bill’s status. Polymarket traders, who have put more than $7.2 million through the contract, now price passage at roughly 20% for 2026 and falling. The Senate returns on September 14 with 14 working days, a cloture vote scheduled for September 15, and a math problem that has not changed since the bill left committee: 60 votes are needed, 51 Republicans are reliable, and nine Democratic crossovers have not materialized.
For the broader crypto market, the failure scenario is a sentiment correction. Bernstein projects a 15 to 30% drawdown for altcoins. For XRP specifically, the stakes are different. Ripple is the only major crypto company whose regulatory status was resolved by a court ruling rather than by agency guidance or legislative action. That distinction, which holders have treated as a strength, is precisely what makes the token vulnerable if Congress fails to act.
The Torres ruling is a wall built on sand
In July 2023, Judge Analisa Torres of the Southern District of New York ruled that Ripple’s programmatic sales of XRP on public exchanges did not constitute securities transactions under the Howey test. The decision separated XRP into categories: institutional sales directly to investors were securities offerings, but secondary market purchases by retail traders who did not know they were buying from Ripple were not.
The ruling was celebrated as a definitive victory. XRP’s price tripled in the months that followed. Exchanges that had delisted the token relisted it. The narrative hardened into consensus: XRP is not a security.
But the Torres decision is a district court ruling. It binds no other court. It creates no precedent outside the Southern District of New York. The SEC chose not to appeal the programmatic sales portion of the ruling when it settled the broader case in 2024, which means the question has never been tested at the Second Circuit or the Supreme Court. In legal terms, the ruling is persuasive authority, not binding authority. Any future SEC enforcement action against a different XRP market participant could relitigate the question from scratch.
The CLARITY Act would have converted that judicial interpretation into statutory law. Under the bill’s framework, XRP would almost certainly qualify as a digital commodity subject to CFTC oversight rather than SEC jurisdiction. The classification would be permanent, applicable nationwide, and not subject to reversal by a single judge or a change in SEC leadership.
Without the bill, XRP’s legal status rests on a decision that one appellate panel could overturn and that a future SEC chair could choose to challenge through a new enforcement action against a different defendant. The wall is real, but it is built on sand.
What a Democratic Congress means for Ripple specifically
The political calendar compounds the legal risk. Kalshi prediction markets place the probability of a Democratic House majority at 84% for the 2026 midterms. If Democrats take the House, Representative Maxine Waters would chair the Financial Services Committee. If they take the Senate, Senator Elizabeth Warren would lead Banking.
Neither lawmaker has shown interest in codifying the Torres ruling. Warren has called crypto regulation a consumer protection issue and has consistently pushed for stricter oversight. Waters engaged with stablecoin legislation during her previous tenure as chair but has not supported market structure bills that would move tokens out of SEC jurisdiction.
For most crypto projects, a change in congressional leadership means delay. For Ripple, it means something more specific: the window to convert a court victory into a legislative guarantee is closing. A Democratic majority is unlikely to pass a bill that explicitly classifies XRP as a commodity, which means Ripple would need to defend the Torres ruling’s interpretation indefinitely through litigation rather than legislation.
The Aug. 19 White House meeting, where Ripple is among the expected attendees alongside Coinbase, a16z, and Chainlink, is the company’s attempt to influence the September outcome. But attendance at a meeting is not a vote on the Senate floor, and the math has not changed.
The IPO question without a statute
Ripple has signaled its intention to pursue an initial public offering for over two years. The company’s valuation in private secondary markets has been estimated between $11 billion and $15 billion. SBI Holdings, the Japanese financial conglomerate that is Ripple’s largest institutional backer, reaffirmed a $41.2 billion exposure to the company in its most recent disclosure.
An IPO requires a level of regulatory certainty that a district court ruling cannot provide. Underwriters and their counsel need to describe the company’s regulatory environment in the prospectus. If XRP’s classification as a non security depends on a single court decision that has never been appealed, the risk factor section of the S-1 filing becomes a document that warns investors the company’s core asset could be reclassified at any time.
That is not a theoretical concern. Every major IPO in the crypto space has faced regulatory scrutiny. Coinbase’s 2021 direct listing included extensive risk disclosures about the SEC’s potential classification of assets traded on its platform. Circle’s SPAC merger was delayed twice over regulatory uncertainty. For Ripple, whose entire business model depends on XRP’s non security status, the risk disclosure would be more severe than anything Coinbase or Circle faced.
The CLARITY Act would have solved this. A statutory classification of XRP as a digital commodity would reduce the regulatory risk section from a warning about existential legal exposure to a description of a known compliance framework. Without the bill, Ripple’s IPO timeline extends indefinitely, or the company proceeds with risk language that could suppress its valuation by 20 to 40% compared to what it would achieve under clear legislation.
RLUSD and the stablecoin question
Ripple launched RLUSD, its dollar backed stablecoin, in late 2025. The token has gained traction: Binance extended its RLUSD rewards campaign through September 11, offering one million XRP across four weekly distributions to eligible users. A former Ripple employee recently announced that an unnamed XRP Ledger startup would use RLUSD rails as its primary payment infrastructure.
The stablecoin landscape is being shaped by the GENIUS Act, a separate piece of legislation focused specifically on payment stablecoins. But the CLARITY Act contains provisions that interact with stablecoin regulation in ways that matter for RLUSD. Specifically, the bill’s framework for how stablecoins are classified and which regulator oversees their issuers would determine whether RLUSD operates under SEC, CFTC, or banking authority oversight.
Without the CLARITY Act, RLUSD’s regulatory path depends entirely on the GENIUS Act and on state level money transmitter licenses. That is a narrower foundation than what the market structure bill would provide. It also means that RLUSD’s competitive position relative to Circle’s USDC and Tether’s USDT depends on a regulatory framework that could shift with each new administration.
The deeper issue is interconnection. RLUSD is designed to function within the XRP Ledger ecosystem. If XRP itself faces renewed regulatory uncertainty because the Torres ruling is challenged, the stablecoin built on Ripple’s infrastructure inherits that uncertainty. Institutional partners evaluating whether to integrate RLUSD will ask the same question that IPO underwriters will ask: is the legal foundation durable?
The spot ETF applications in limbo
Seven asset managers have filed applications for XRP spot exchange traded funds with the SEC. The applications cite the Torres ruling and the expectation of legislative clarity as the basis for arguing that XRP is a commodity suitable for an ETF wrapper.
XRP spot ETFs recorded $1.01 million in net inflows for the week ending August 10. But that figure followed a single day outflow of $3.58 million on August 5, producing a mixed signal about institutional conviction. The derivatives and exchange flow data around the $1 level tells a similar story: open interest is rising while price is falling, suggesting leveraged traders are positioning for a directional move but disagree on which direction.
If the CLARITY Act fails, the SEC faces a choice on the ETF applications. It can approve them based on the Torres ruling alone, which would be a significant expansion of the precedent. Or it can delay them pending further regulatory clarity, which could mean years of additional waiting.
The comparison to bitcoin ETFs is instructive. The SEC approved spot bitcoin ETFs in January 2024 only after losing a court case brought by Grayscale. The approval was grudging, not enthusiastic. For XRP ETFs, the SEC would need to accept that a single district court ruling, in a case it chose not to appeal fully, constitutes sufficient legal clarity to support a new investment product. That is a higher bar than the one bitcoin cleared, and a new SEC chair appointed by a different administration could set the bar higher still.
The $1 level and what legislation means for price
XRP trades at $1.01 as of August 19. The token has declined 66.8% from its all time high of $3.65, reached in July 2025 during a rally fueled by the SEC settlement and expectations of legislative action. The $1 level represents the approximate entry price for a large cohort of holders who bought during the post settlement breakout in late 2024 and early 2025.
The market structure around $1 is fragile. Futures open interest stands at $2.72 billion, up 8% over two weeks even as price has declined. Exchange withdrawals have hit a five year high while whale inflows to Binance have fallen to their lowest level since 2021. These signals point in opposite directions: long term holders are pulling tokens off exchanges, suggesting conviction, while leveraged traders are building short positions, suggesting doubt.
If the CLARITY Act fails and the broader market corrects by the 15 to 30% that Bernstein projects for altcoins, XRP would need to absorb that selling pressure at a level where loss aversion is already acute. A 20% decline from $1.01 would put the token at $0.81, below the pre settlement trading range and into territory that would force a repricing of every valuation model built on the assumption of regulatory clarity.
The bull case requires a different outcome. If the September 15 cloture vote passes and the bill moves to floor debate, the relief rally could be sharp. XRP outperformed the broader market on every previous legislative milestone, including the House passage in July 2025. But the odds of that outcome are now 10 to 20%, which means holders are betting on a tail event rather than a base case.
The SEC’s alternative path
The SEC is not waiting for Congress. On August 18, the agency proposed Regulation Crypto Assets, a rulemaking package that includes exemptions for certain investment contracts involving crypto assets. One exemption covers offerings up to $5 million over four years. Another covers offerings up to $75 million per twelve month period.
These rules would not replace the CLARITY Act. They do not resolve the commodity versus security classification question, and they do not assign jurisdiction between the SEC and CFTC. But they do create an alternative regulatory track that could reduce the urgency of legislative action.
For Ripple specifically, the SEC’s rulemaking introduces a complication. If the agency is willing to create exemptions and safe harbors through regulation rather than legislation, it may also be willing to revisit the Torres ruling’s interpretation through new enforcement actions. The SEC settled the Ripple case in 2024, but settlements do not prevent the agency from bringing new cases against different defendants on the same legal theory. A future SEC enforcement action against an XRP market maker or a DeFi protocol that uses XRP as collateral could reopen the classification question without contradicting the settlement.
What to watch
The September 15 cloture vote. If it fails to reach 60 votes, the CLARITY Act is effectively dead for this Congress. Watch the count of Democratic senators who commit publicly before the vote.
SEC action on XRP ETF applications. The agency’s response to the seven pending applications will signal whether it views the Torres ruling as sufficient legal basis for approval or whether it considers the question unresolved.
Ripple’s IPO timeline. Any delay or restructuring of IPO plans would confirm that the company views legislative failure as material to its valuation. Watch for changes in secondary market pricing of Ripple equity.
XRP exchange flow direction. If net withdrawals from centralized exchanges reverse and inflows spike, it would signal that long term holders are losing conviction at the $1 level. The current withdrawal trend is bullish; a reversal would be the first sign of capitulation.
RLUSD institutional integrations. New partnerships announced after a CLARITY Act failure would suggest that Ripple’s stablecoin strategy can survive without market structure legislation. Silence on new integrations would confirm the opposite.
What is the CLARITY Act and why does it matter for XRP?
The Digital Asset Market Clarity Act is a market structure bill that would define which digital assets are commodities and which are securities, assigning regulatory authority to the CFTC and SEC respectively. For XRP, the bill would codify the token’s status as a digital commodity, converting a single court ruling into permanent federal law.
Is XRP currently classified as a security?
No, based on the 2023 Torres ruling in SEC v. Ripple, programmatic sales of XRP on public exchanges are not securities transactions. However, this is a district court decision with no appellate confirmation, meaning it could be challenged or overturned in future litigation.
What are the odds of the CLARITY Act passing in 2026?
As of August 19, 2026, Polymarket prices passage at approximately 20% for the calendar year. Galaxy Digital and the Solana Policy Institute both assign 10% odds before the midterms. The Sept. 15 cloture vote is the next procedural milestone.
How would CLARITY Act failure affect XRP’s price?
Bernstein projects a 15 to 30% correction for altcoins if the bill fails. For XRP, the impact could be steeper because the token’s valuation since late 2024 has been built partly on the expectation of legislative clarity. A decline to the $0.80 range would breach pre settlement support levels.
Can XRP spot ETFs be approved without the CLARITY Act?
Technically yes, but the SEC would need to rely solely on the Torres ruling as legal justification. This is a higher bar than bitcoin ETFs faced, and a future SEC chair could choose to delay approval pending clearer regulatory authority from Congress.
What happens to Ripple’s IPO if the bill fails?
An IPO without statutory regulatory clarity would require extensive risk disclosures about XRP’s classification status. This could suppress Ripple’s valuation by 20 to 40% compared to what it would achieve under clear legislation, or delay the offering indefinitely.
Does RLUSD need the CLARITY Act to succeed?
RLUSD can operate under state money transmitter licenses and potentially under the GENIUS Act’s stablecoin framework. However, the CLARITY Act would provide a broader regulatory foundation that would make institutional integration easier and reduce the risk of jurisdictional conflict between federal regulators.
What is the Torres ruling and why is it not enough?
The Torres ruling is a July 2023 district court decision in SEC v. Ripple Labs that found programmatic XRP sales on exchanges are not securities under the Howey test. It is not enough because district court rulings do not bind other courts, the SEC did not appeal this specific portion, and a future enforcement action against a different XRP market participant could relitigate the question from scratch. This is educational analysis, not investment advice.
Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions. Information is accurate as of August 19, 2026.
