Bitcoin ($BTC) continues its march higher after an extended period of price doldrums.
Right now, Bitcoin is trading around $76,000, after topping $78,000 earlier today.
Just last week, Bitcoin was trading in the low sixties. So what has changed?
The bulls are back in charge, it seems, with positive comments on the potential for passage of the CLARITY Act, which is scheduled for a vote in the Senate around September 15th. The crypto market infrastructure bill would establish a bespoke regulator regime for digital assets, outlining which agency regulates what, while protecting consumers. During a meeting of crypto insiders at the White House yesterday, President Donald Trump touted the bipartisan support he expects to emerge once the legislation heads to a floor vote.
Then there is the commentary and rulemaking emerging from the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), declaring that, with or without the CLARITY Act, they will establish new rules for crypto. Earlier this week, the SEC announced a new exemption, Regulation Crypto Asset (Reg CA), which will go into effect after a comment period.
Genie Back in the Bottle?
The challenge with agency rulemaking is that a future administration that may be less supportive of Fintech and digital asset innovation can undo it. Law trumps rulemaking. But can a hostile administration put the genie back in the bottle once digital asset firms act upon updated rules? Probably not, with some caveats.
As we saw with the Biden Administration, a hostile posture towards digital assets stymied the entire sector, driving innovation outside the country while punishing those who pursued entrepreneurship in the sector. While regulation by enforcement was a cop out, and shameful, it is effective, and rule changes can reanimate the policy monster. In politics, it is not always about what is best for consumers and the country. It’s often about posturing and superficial declarations of calamity… never waste a crisis…
As for the technicals around the $BTC trade, the Bitfinex Analyst Team says squeeze-led rallies tend to leave an open question about whether they can continue. They predict that, because of significant ETF demand and the absence of heavy selling, this one has legs, albeit with small retracements along the way.
“The shape of the move is the tell. Rallies built on fresh leverage show open interest jumping in step with price. Price climbed 10% to 11% while open interest rose only around 4%, which points to spot buying and short covering doing the work, with leverage playing a minor role. The weaker version of this setup is open interest stacking up while price stalls, and that isn’t what happened.”
On the other side, a rally could turn into a profit-taking wave. Also, higher yields could stem the rally.
Bitfinex says daily ETF inflows are the number to watch, as they have generated billions of dollars in buys in recent sessions. A full week at that pace would “harden the support.”
Nansen Senior Research Analyst Nicolai Søndergaard says short covering didn’t create the rally, but it certainly accelerated it.
“Bitcoin’s move above $70,000 reflects a combination of forced short covering, renewed institutional demand and a more supportive liquidity backdrop. Bitcoin rose sharply while open interest remained broadly contained, and the liquidation data shows substantially more short pressure being removed than long pressure. That helped push the breakout and chase the short squeeze.”
Søndergaard sees the move supported by broad demand, pointing to the spot Bitcoin ETF market experiencing $571 million in inflows while the dollar has weakened. The optimism around the CLARITY Act is adding a “regulatory premium.”
“Bitcoin is now above its 20-week and 200-day moving averages, as well as the estimated short-term-holder cost basis near $68,700. But the market is stretched: one-hour RSI is near 78, four-hour RSI is above 85, funding is positive, and leveraged positioning is crowded on the long side,” says Søndergaard. “The next phase is therefore likely to be decided by whether spot and ETF demand continue after the short squeeze. Sustained acceptance above $70,000 would keep the outlook constructive, while a pullback toward the $69,700–$69,000 area would be a normal test of the breakout rather than an automatic trend reversal.”
Lacie Zhang, Research Analyst at Bitget Wallet, also sees the rally being supported by a political premium. Improving regulatory expectations, plus lower long-term Treasury yields, add fuel to the short squeeze, which saw $1 billion in short positions dumped. “The pre-midterm window gives Washington an incentive to move on crypto now,” adds Zhang.
“Ahead of the November midterm elections, the administration has an incentive to demonstrate lower borrowing costs, stronger financial markets and visible progress in high-growth industries. The legislative window could also narrow if Democrats gain seats and subject the administration’s crypto rules to greater scrutiny. This gives both the White House and the crypto industry a strong incentive to push for legislation now and make the regulatory changes more difficult for a future Congress or administration to reverse.”
Zhang notes that Trump is presenting crypto, AI, and Fintech as part of a strategy for US technology leadership. Why would politicians be against this?
She also says that a forthcoming visit by Chinese Premier Xi provides more incentive for the US to project confidence and strength in financial markets and technology.
“Crypto is moving into the core of U.S. finance, explains Zhang.
“Regardless of the administration’s short-term political motivations, the more important structural development is that crypto is moving from the regulatory perimeter into the core of the U.S. financial system. The current rally may partly reflect election-cycle politics, but the gradual integration of digital assets into the U.S. capital markets, custody, payments, and financial infrastructure is the largest long-term story.”