Why the Crypto Market Is Bullish… Even Without CLARITY

Managing Editor’s Note: Today, we have a follow-up from senior blockchain analyst Ben Lilly…

Last week, he explained the circumstances that led to the CLARITY Act’s vote being stalled once again, as well as the next critical date for its progress.

But today, Ben explains that while CLARITY’s delay is unfortunate, the market doesn’t hinge on CLARITY’s passage.

And it is still bullish, even without CLARITY. Read on for more from Ben…

The timing of the digital asset market is about to get very interesting…

And it might have nothing to do with what Washington, D.C., does or thinks.

Now don’t get me wrong… It was a major blow not to get a vote on the CLARITY Act before the Senate went on recess. We covered that in What’s Next for the CLARITY Act.

The odds of passage dropped significantly. That’s because the bank lobbyists now have five weeks to sway Senate members before they return to Washington, D.C., to vote on the bill.

These are the same lobbyists who have been very good at delaying the bill since December of last year. They’ll continue to push hard until the yeas and nays are recorded.

But while we wait this period out, two interesting things are happening…

One is simply the normal ebb and flow of the market. The other is that regulators are already picking up the slack.

Let’s have a look at both so we can better predict what comes next.

Where the Bellwether Goes…

Bitcoin is the bellwether asset. Where it goes, the market goes. It’s the proverbial sun in the center of the digital asset solar system.

That’s the benefit of being a $1.27 trillion asset in a $2.26 trillion market.

That’s why we need to understand Bitcoin’s monetary policy.

Bitcoin has a supply cap of 21 million Bitcoin. There will never be more than that. But to get to the point where all Bitcoin are in circulation is a long process. The last Bitcoin won’t be mined until 2140.

Longtime crypto investors will know why…

Over time, the amount of Bitcoin mined decreases. The first block ever created produced 50 Bitcoin on Jan. 3, 2009. At the time, these were the only Bitcoin in circulation.

Then, after 210,000 blocks were mined, with each block taking approximately 10 minutes, the amount of Bitcoin produced with each new block was cut in half.

We call this a halving. As the name suggests, it’s when the amount of new supply minted per block gets cut in half. The event takes nearly four years to happen. There have been four halving events to date, with the next one expected in April 2028.

As you might expect, halvings tend to be bullish periods for the asset. All else equal, less new supply coming online will make the remaining supply in circulation more valuable. But what’s interesting is that price doesn’t wait for the actual halving event, as the chart below shows.

Notice the vertical yellow lines. These are halving dates. And, yes, post-halving tends to be bullish for Bitcoin. But also notice that price tends to trend up well before the actual event.

The natural question then follows…

Just when does this multiyear trend begin based upon what we know from the last four halvings?

Right now, we are a bit more than halfway between the last halving and the upcoming one – 58% of the way there, to be exact.

When we look at that distance historically, this is the chart we get. The ends of the green areas denote where 58% falls on the prior halvings.

Source: charts.bitbo.io

That 58% to the next halving does appear to be an important milestone. As the chart shows, Bitcoin bottomed and began to trend higher on or around the 58% threshold in each of the last four cycles. And that’s where we are right now.

But here’s what’s more interesting…

During the last halving period, 58% fell right around September 2022. Bitcoin’s bottom was indeed right around the corner… But the rest of the market had already bottomed out. Ethereum, for example, hit its bottom in June 2022.

It’s worth noting because much of the market believes in this halving logic. And if history is any guide, the market’s true bottom might occur in October this year. Then again, the bottom might have already occurred, especially for the rest of the market.

And against this optimistic backdrop, some very encouraging things are taking place on the regulatory front.

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Not Sitting Still

We hit on our next point in our last essay at Chain of Thought…

Keep an eye on the SEC and CFTC over the coming weeks.

We mentioned in How to Be Bullish Without the CLARITY Act that the SEC, CFTC, and the White House have been pushing forward on Project Crypto. It’s their initiative to bring finance onchain.

They’ve been issuing a lot of guidance over the last year within the existing framework. Put another way, the regulators are doing everything they can until CLARITY gets over the line.

With CLARITY delayed, and the banks not backing down, we should expect them to ramp up guidance or rulings in the weeks ahead.

Turns out the SEC and CFTC are not waiting around.

The SEC announced on Monday that it’ll hold a meeting to consider proposing new rules to create a tailored offering regime for certain investment contracts involving crypto assets.

The meeting is expected to take place this Friday.

It’s said this meeting does not represent a pessimistic stance toward CLARITY passing in September… I’m not sure I buy that.

This meeting is being scheduled just after the Senate left for recess. It has the look and feel of the SEC beginning to make good on what SEC Chair Paul Atkins said his agency would do when he was on air last month.

He mentioned his agency is prepared to issue its own crypto market rules if Congress fails to pass the CLARITY Act. In essence, this looks like the beginning of Plan B.

This comes on the heels of CFTC Chair Mike Selig stating on August 4 that the CFTC has digital asset rule proposals ready and will proceed with rulemaking regardless of what happens with CLARITY.

The two agencies are marching to the same drumbeat. They are in sync and ready to move forward. And it could begin as early as this Friday.

If they’re successful, the market will get what it ultimately wants from regulators: clear rules of the road and the understanding that startups will not be bullied with legal proceedings.

This, combined with the halving pattern shared above, is enough to be optimistic for a multiyear run… which may have already begun.

If there was ever a time to consider getting active in the market, it’s now.

Your Pulse on Crypto,

Ben Lilly

Senior Blockchain Analyst, Chain of Thought