The Clarity Act died on Tuesday.
The Senate voted 49 to 50—short of the 60 needed to even start debate, with zero Democrats voting to proceed. After a year of negotiations and 126 changes to win over Democrats, the industry’s largest regulatory push collapsed.
The market felt it instantly. Coinbase closed down 10.1%, Circle fell 11.5%, Galaxy dropped 7.6%, and Strategy slid 5.4%.
Bitcoin dropped 3.6%.
Why did bitcoin drop only a third as far? Because Coinbase and Circle are companies. A dead bill directly guts their earnings, ending the rules they needed to operate cleanly in the US.
Bitcoin, meanwhile, has no earnings for a bill to hit. It is money people hold instead of dollars in the bank—and dollars earn interest. Speculation aside, bitcoin pays you nothing. The higher interest rates climb, the more yield you sacrifice by holding it.
That brings us to the test that actually matters this week. Central banks set that yield: the Federal Reserve raised its rate on Wednesday, and the Bank of Japan is expected to follow on Friday.
In the rest of this issue: what bitcoin had already priced in, what each rate decision means for the charts, whether this is a dip to buy, and what to watch through the end of September.
Where the Clarity Act Blow Landed
Crypto stocks traded the bill’s odds in both directions inside two days.
On Monday, after Senate Republicans released Clarity’s final text, Coinbase rose 9.2% and Circle rose 7.5%. Bitcoin gained 2.2%. By Tuesday’s close, Coinbase and Circle had given back all of it and more.
That split fits the pattern our July issue found, when research from Charles Schwab showed that changes in the odds of the bill passing explained just 4.3% of bitcoin’s daily price moves this year. An exchange and a stablecoin issuer earn money under rules a statute would write, so the bill’s odds show up in their revenue estimates.
Traders also saw the failure coming. Alex Thorn, head of firmwide research at Galaxy, wrote on Tuesday evening that the size of bitcoin’s intraday drop showed how much of the failure was already priced in. K33 Research said before the vote that markets were positioned for both a hike and a failed bill.
Some of the sell off came early. Spot bitcoin exchange-traded funds lost $463 million over four straight sessions last week.
In the rest of the issue, subscribers get:
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- What the Fed’s decision did to bitcoin, and the part of its message that mattered more than the hike
- Why the Bank of Japan meeting carries more risk this week, and what the August 2024 crash shows about the yen
- How much leverage was still in the market after Tuesday’s drop
- Where this week sits in bitcoin’s cycle, and the stretch of the calendar that opens on Oct. 5
- Bull, base and bear ranges for bitcoin, and the dates through Sept. 30 that decide between them
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