(Bloomberg) — The Clarity Act was supposed to deliver the next catalyst for a battered crypto market whose adherents were pinning their hopes on a rescue out of Washington. The breakthrough never materialized and the industry is now dealing with a pile-up of headwinds.
Bitcoin, the largest digital token, sold off and crypto bellwethers including Coinbase Global Inc. and Circle Internet Group Inc. sank as well after the Senate failed to advance the bill on Tuesday, stripping away a hoped-for pillar of support at a time when retail-investor interest has waned and higher interest rates and tighter liquidity have weighed on the market. The industry was dealt another blow Wednesday when the Federal Reserve raised interest rates for the first time in three years, creating a backdrop that has historically proved unfavorable for non-yielding Bitcoin and other tokens.
The largest cryptocurrency was little changed at around $76,000 following the mid-week decision, while shares of Bitcoin-treasury firms Strategy Inc. and Strive Inc. were lower.
Higher short-term interest rates have rarely been kind to Bitcoin, at least in the immediate aftermath. Of the last 10 instances when the Fed hiked — outside of today — just two had the token trading higher a month out, data compiled by Bloomberg show.
With hopes for the Clarity Act passing vanquished — at least for now — digital-asset enthusiasts are left wondering: if regulatory clarity isn’t the redeemer the industry had hoped for, then what is?
“Prices could be quite range bound and even trade lower into year-end as we reassess the outlook,” said Adam McCarthy, head of research at trading firm LO:TECH. “The rate hike shift is a double whammy.”
To be clear, the bill had always been a long shot, and its failure hardly explains crypto’s malaise in the longer term. Several headwinds had already exacerbated the bear market. Holders of Bitcoin exchange-traded fund shares, one of the most common ways for US institutional as well as retail investors to gain exposure to crypto, have been underwater on their investments for much of the year, given the market’s declines.
After the vote, open interest, or the number of outstanding contracts for Bitcoin futures, continued to trend downward, according to data from CoinGlass. pointing to waning demand from retail investors who typically use such contracts to make leveraged bets on digital assets. Liquidity remains thin with traders still on the sideline. The market cap for stablecoins — or currency-backed tokens — have remained stagnant, while exchanges have notched prolonged outflows, according to data from Glassnode.
“The failed Clarity vote was a meaningful crypto-specific catalyst, but it was not the sole driver of the selloff,” said Lacie Zhang, research analyst at Bitget Wallet. “Bitcoin was already under pressure before the Senate vote.”
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