Bitcoin faces 'sell the fact' risk ahead of CLARITY Act vote and FOMC decision

FUNDAMENTAL OVERVIEW

Over the past week, Bitcoin has demonstrated notable strength even as conditions typically unfavorable for risk assets prevailed. The unexpected rise in US monthly core inflation has raised expectations for rate hikes, while oil prices exceeding $100 are intensifying inflation worries and strengthening the case for a tighter monetary stance.

Despite these pressures, Bitcoin has mostly held its ground, indicating that crypto-specific developments may be counterbalancing the worsening macroeconomic environment. One such factor could be the increasing optimism surrounding the CLARITY Act.

The CLARITY Act seeks to provide a more defined regulatory framework for digital assets in the US. A key goal is to more distinctly separate the responsibilities of the SEC and CFTC. Additionally, the legislation aims to set regulatory standards for crypto exchanges, brokers, and dealers.

For the broader crypto market, the potential upside lies in regulatory clarity. With clearer rules, exchanges, financial institutions, and asset managers could face less risk of unexpected regulatory actions, and traditional financial firms might find it simpler to develop and offer crypto-related products. The SEC has acknowledged that legislation is necessary to establish lasting, "future-proofed" regulations for the sector and has voiced support for the CLARITY Act.

This could ultimately pave the way for increased institutional involvement, greater liquidity, and more capital flowing into digital assets. Tomorrow at 2:15pm ET, the CLARITY Act will undergo its first significant Senate hurdle with the cloture vote. To simply open debate, 60 votes are required.

Should the vote fail, the legislative window for crypto market structure this year could effectively close, given the November midterms, which may lead to a Bitcoin selloff. Even a successful vote might not be enough, as I fear we could witness a "sell the fact" reaction, with Bitcoin declining as attention quickly shifts to the FOMC decision on Wednesday.

BITCOIN TECHNICAL ANALYSIS – DAILY TIMEFRAME

The daily chart shows Bitcoin bouncing off the major support at 76,000. Buyers are expected to enter around these levels with a defined risk below the support, aiming for a rally back to the 82,500 resistance. Conversely, sellers will likely wait for a clear break below the support to target a drop into the 67,000 support zone.

BITCOIN TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4-hour chart, the price is breaking above the downward trendline that had been characterizing bearish momentum. Buyers are likely to act on this breakout with a defined risk below the broken trendline, continuing to target the resistance. Sellers, however, will need to see a break below the support before new lows become likely.

BITCOIN TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

The 1-hour chart shows the price breaking above the minor resistance zone near 77,600. This is another area where buyers are expected to step in with a defined risk below the broken trendline to push toward new highs. Sellers, on the other hand, will either wait for the price to reach resistance levels or break below support to target new lows.

UPCOMING CATALYSTS

Tomorrow brings the cloture vote on the CLARITY Act. Wednesday features the FOMC rate decision. On Thursday, US Jobless Claims figures are due. Additionally, traders are monitoring developments in the Middle East closely.