Bitcoin Can Keep Rising Even if the Clarity Act Stalls; Rates, ETF Flows Are Key

Bitcoin gains 38% despite legislative setback

Bitwise revises its prolonged-slump view

ETF and futures infrastructure already in place

Interest rates and institutional inflows are the key variables

Bitcoin’s rebound is facing a test after the US Senate hit a roadblock on the Clarity Act, a market-structure bill for digital assets. But analysts say the bill’s passage should not be viewed as a decisive precondition for further gains. Bitcoin already has an institutional investment framework in place, making it more sensitive to interest rates and actual capital inflows than to regulatory change.

Even analysts who had worried about legislative delays are revising their outlook. In an investor memo on September 16, Bitwise Chief Investment Officer Matt Hougan walked back his earlier view that failure to pass the Clarity Act would prolong the crypto market downturn. He pointed to Bitcoin’s advance and continued expansion by financial firms into the market even as the odds of the bill passing this year fell.

Bitcoin Rises as Legislative Hopes Fade, Shifting Wall Street’s View

The Clarity Act failed to clear a procedural vote in the US Senate on September 15 that would have advanced consideration of the measure. It received 49 votes, short of the 60 required, clouding prospects for passage this year.

Until recently, financial-market participants had worried that a legislative delay would slow institutional inflows and weigh on prices. Citi in March cut its 12-month Bitcoin price target to $112,000 from $143,000, citing delays in US crypto legislation among other factors. At the time, Citi strategist Alex Saunders said regulatory change would spur broader market participation and fresh inflows, but the odds of legislation passing in the US this year were diminishing.

More recently, though, analysts have begun to argue that Bitcoin’s rally could continue even if the bill remains delayed. Hougan said in January that failure to pass the measure could extend the crypto winter by six more weeks. In his latest memo, he wrote that he no longer sees that as the most likely scenario.

The shift came down to price action. Bitcoin climbed from about $57,950 on July 1 to more than $80,000 on September 4. Over the same period, the probability on Polymarket that the Clarity Act would be enacted this year fell to 18% from 39%. Bitcoin rose about 38% even as expectations for the bill deteriorated. If the rally had depended on passage of the measure, Hougan wrote, the price should have fallen alongside those declining odds. Instead, the opposite happened.

Wall Street’s moves told the same story. Hougan cited Robinhood’s launch of its own blockchain, Morgan Stanley’s Solana ETF launch and settlement of tokenized stock trading by the Depository Trust & Clearing Corp. Major financial firms are expanding their crypto businesses without waiting for Congress to act.

He also said rulemaking by the Securities and Exchange Commission and the Commodity Futures Trading Commission could support that trend. Business conditions may improve through follow-up action by regulators even if the bill is delayed. Hougan maintained that passage of the bill would have been more positive for investor sentiment and prices. Still, he no longer treats it as essential to a bull market.

Already Embedded in Mainstream Finance as Bitcoin’s Legal Status Differs From Altcoins

The analysis rests in part on the view that Bitcoin faces a different regulatory landscape from other digital assets. The Clarity Act would set standards for classifying digital assets, divide oversight between the SEC and CFTC, and establish operating rules for exchanges and brokerages. The focus is on reducing uncertainty around issuance and trading.

Bitcoin, however, is already treated as a commodity in the US. In January 2024, the SEC approved the listing and trading of spot Bitcoin exchange-traded products. That gave institutional investors a channel to gain exposure through brokerage accounts before any new legislation was passed.

Bloomberg ETF analyst James Seyffart said that, for that reason, the Clarity Act’s direct effect on Bitcoin’s price is likely to be limited. Bitcoin already has commodity status, a regulated futures market, spot ETFs and institutional custody infrastructure in place. Institutional investment in Bitcoin does not hinge on the bill passing first.

Rates and Spot ETF Flows Are the Key Variables

Analysts point to interest rates and flows into spot ETFs as the main conditions for a Bitcoin rebound.

Rachel Lucas, an analyst at BTC Markets, said the market is currently being driven more by rates than by policy expectations. Investors should watch the path of rates and whether ETF inflows recover. Justin D’Anethan, head of research at Artic Digital, also stressed the importance of rates and the broader monetary backdrop, saying Bitcoin has reached record highs before without the Clarity Act.

The monetary-policy backdrop is proving to be a headwind. The Federal Reserve raised its benchmark rate by 0.25 percentage point on September 16 to a range of 3.75% to 4.00%. The Federal Open Market Committee said inflation remained elevated and that it raised rates to speed the return toward its target.

Fresh buying has also slowed. Glassnode said in a report released on September 16 that US spot Bitcoin ETFs drew about $1 billion at the start of this month, but posted net outflows of about $334 million from September 8 to September 14. That suggests flows had already weakened before the Senate vote on the bill. Glassnode added that stablecoin supply growth and corporate Bitcoin buying had also stalled, and that the lack of new demand contributed to Bitcoin’s decline.

A legislative delay does not mean regulatory development stops altogether. JPMorgan said in a report that market attention will now shift to rulemaking by the SEC and CFTC. It added that agency rules are less stable than statutes because they can be changed by the next administration or constrained by court rulings. JPMorgan said the Clarity Act could reduce long-term regulatory uncertainty, but a sustained rebound in Bitcoin will also require better conditions for investors to put real money to work.