The Clarity Act Is Still Alive
The US Senate has pushed the Clarity Act aside before its summer break, which starts August 8th. A week and a half ago the bill had strong momentum. Now the Senate has a packed agenda, and the delay raised the question of whether the bill is dead, or whether it would even pass later given that midterms could bring in different lawmakers.
The bill is not dead. It sits in the middle of hard negotiation, near the finish line. The president and the administration added ethics language to it, and that ethics language is now the main sticking point. There is back-and-forth going on, with Democrats deciding what more they want to ask for.
Support is building as the deal nears its end. Franklin Templeton put out a public comment backing the Clarity Act, and many peer firms did the same. That growing wave of support is a good sign, even with the recent push-out of the process.
Why the Fed Meeting Matters for Crypto
The Federal Open Market Committee meets tomorrow. Crypto trades with a strong inverse link to interest rates and real yields. When the market expects the Fed to raise rates, crypto tends to fall. That risk is sharper now because the economy is not broadly strong. It is a good economy, but a narrow one, concentrated around the AI sector. A rate hike in that setting would hurt crypto.
Last night a broker predicted a surprise rate hike. Bitcoin and the wider market dropped right away, then steadied. The futures market is not pricing in a big jump in the odds of a hike tomorrow, though the odds sit higher than normal for the day before a meeting.
Why higher than normal? Chairman Warsh has taken a new approach. He wants the data to speak for itself and gives the market far less advance signaling than Chairman Powell did. The market is still adjusting to that new leadership. A hold is fairly likely, but the answer comes in a day.
Other pressures also touch crypto. A chip selloff and incoming margin calls can weigh on it too.
Prices Have Split From the Fundamentals
The inverse rate link is not holding cleanly right now. The last rate hike was last year. It is now almost August, yet Bitcoin is down 27% year to date, trading near 63,000 after touching 127,000. Falling or steady rates should have helped, not hurt.
Part of the answer is that a small sector, AI, has pulled in a large share of the flows, drawing money that might otherwise reach crypto.
From a seat that talks to both the sell side and the rest of the buy side, the momentum to adopt blockchain technology looks huge. Traditional finance and crypto are merging faster than ever before. At the same time, the gap between prices and those strong fundamentals is wider than it has ever been.
What Could Turn It Around
Several forces are lining up that could set up an interesting second half of the year for crypto. It could be the Clarity Act passing. It could be AI taking a breather, which would free up flows. Underneath it all sits real, strong adoption momentum. That base of fundamentals is what could drive a move of 10 to 20%, well short of past highs, but a meaningful recovery.
