What Sparked the Cryptocurrency Surge?

The US Senate held a procedural vote on the CLARITY Act last week. Predictably, it did not pass because Republicans hold 53 seats while 60 votes were needed, and Democrats were not particularly in favor of the bill or the crypto industry overall. As a result, the market initially fell, but the decline was short-lived since the outcome had already been anticipated. For the same reason, the cryptocurrency market showed little reaction to the Federal Reserve's rate hike.

Nevertheless, this does not account for the source of the optimism, and several theories exist.

One theory is that some of the upward momentum might be due to the US House Financial Services Committee approving a bill aimed at establishing a strategic Bitcoin reserve. The legislation can now proceed to a vote in the full House. If approved there, it would still require Senate passage and the president's signature. Under the terms, any Bitcoin in the reserve could not be sold, traded, or used as collateral for 20 years.

However, according to Arkham, the US government possesses roughly 324,500 BTC, valued at close to $29 billion. While that is a substantial amount, it remains modest relative to Bitcoin's $1.72 trillion market capitalization. Significantly, there are no discussions about acquiring additional Bitcoin for the reserve.

Another theory points to Coinbase's CEO, who stated: "We can’t wait for senators forever. We don’t need the CLARITY Act anymore. We’ll turn to regulators. The SEC and CFTC will develop clear rules."

While that statement might have lifted the market, it remains difficult to understand how they could circumvent Congress and approach the SEC and CFTC directly for clear regulations. A more significant influence could have been short sellers, as $648 million worth of positions were liquidated within a single 24-hour period.

Regarding future expectations, the breakeven level for US spot Bitcoin ETFs is approximately $85,638 to $86,000. Therefore, staying above $86,000 is crucial for sustaining momentum. The primary issue is that there are limited fundamental catalysts for such a move.

From a regulatory perspective, there is also little reason for optimism. The Federal Reserve has already increased interest rates and may do so again if inflation remains elevated. The more significant concern is that if Democrats prevail in the midterm elections, passing pro-crypto legislation could become more difficult, and the president may also face impeachment proceedings.

Therefore, it is premature to discuss Bitcoin's price recovering above $100,000. However, if risk-on appetite returns, for instance after the Iran conflict concludes, it could experience gains.