Why did crypto surge?

Last week, the US Senate held a procedural vote on the CLARITY Act, which unsurprisingly failed to pass, as Republicans hold 53 seats while 60 votes were needed, and Democrats weren’t exactly supportive of the bill or the crypto sector as a whole. Hence, the market initially dipped, but it didn’t last long since this was already priced in. For the same reason, crypto barely reacted to the Fed raising rates.

Still, that doesn’t explain where the optimism came from, and there are a few theories.

The first is that part of the boost may have come from the US House Financial Services Committee’s approval of a bill to create a strategic Bitcoin reserve. It can now go to a vote in the full House, and if it passes, it would still need to clear the Senate and get the president’s signature. If passed, the Bitcoin in the reserve couldn’t be sold, exchanged, or pledged for 20 years.

The thing is, according to Arkham, the government currently holds around 324,500 BTC worth almost $29 billion, which sounds like a lot but is still small compared with Bitcoin’s $1.72 trillion market cap. And importantly, there’s still no talk of buying more Bitcoin for the reserve.

Second, some point to Coinbase’s CEO saying, “We can’t wait for senators forever. We don’t need the CLARITY Act anymore. We’ll turn to regulators. The SEC and CFTC will develop clear rules.”

Although that could have given the market a boost, it’s still hard to see how they could bypass Congress and go straight to the SEC and CFTC for clear rules. A bigger factor may have been short sellers, with $648 million in positions liquidated in just 24 hours.

As for what to expect next, the breakeven point for US spot Bitcoin ETFs is around $85,638–86,000, so holding above $86,000 is key to maintaining momentum. The only problem is that there aren’t many fundamentals for that.

On the regulatory side, there’s not much to be optimistic about either. The Fed has already raised rates and could do it again if inflation stays high. The bigger issue is that if Democrats win the midterms, pro-crypto legislation could become harder to pass, and the president could also face impeachment.

So it’s still too early to talk about Bitcoin price getting back above $100,000, but if risk-on returns, for example after the Iran conflict ends, it could benefit.