Dear Bitcoiners,
What a week! The CLARITY Act failed to advance, and the Federal Reserve raised interest rates by 25 basis points. Yet Bitcoin’s price barely reacted overall. Another round of ‘negative’ news that failed to trigger a new capitulation event.
Over the past few weeks, we’ve built a strong case that the Digital Credit stress test likely marked the bottom of this bear market. The recent breakout above key levels strengthened that case considerably. But as we’ve discussed, historically strong momentum needed to reset before a next leg up. The current breakout needs to establish support.
Today, I have lots of on-chain insights! We’ll discuss the reset in capital flows and an important signal from realized profits. After that, we’ll do a Cost Basis Analysis with a complete NEW CHART, and identify the levels that matter most for near-term price action and the continuation of this recovery.
But before we jump into on-chain analysis, let’s quickly discuss the regulatory developments.
Regulatory Clarity
We’ve discussed how reversing years of restrictive regulatory policies and opening the banking system to Bitcoin would take time. The CLARITY Act was part of that process.
A lot of effort went into this, but the Senate failed to advance the bill, falling short of the required 60 votes. For clarity, this was not a final vote on the legislation.
The main disagreement centered on ethics concerns involving Trump’s personal crypto business interests. Democrats argued that the proposed safeguards were insufficient.
Bitcoin is already treated as a commodity, and the bill wouldn’t change that status. It would, however, have established a framework under which other crypto assets could qualify as commodities. Not a positive from a Bitcoin maximalist perspective, but the bill also had positive aspects for Bitcoin, as it would have provided more durable legal protections for developers, self-custody and non-custodial software.
Without the bill, the SEC and CFTC can continue implementing guidance and rules under their existing authority, but these measures don’t provide the same durability as legislation passed by Congress.
With the midterms approaching, the future of CLARITY remains uncertain. A shift in the balance of power in Congress could complicate the process even further.
Price Holding Up
From the Coldcard hack and the BIP-110 chain split to the Liquid hack and now CLARITY, Bitcoin has held up well. None of these events have triggered another capitulation, an encouraging signal!
However, demand hasn’t been strengthening either. On-chain capital flows are resetting, ETF flows have lost a bit of momentum, and treasury-company purchases remain marginal. As discussed before, a period of consolidation and a reset in momentum is entirely reasonable after such a strong breakout. The important part for Bitcoin now is to establish support.
Realized Profits Are Returning
During the bear market, realized losses dominated as investors transferred coins below their cost basis. Recently, realized profits have started to return.
👉 Key insight: Historically, the transition from prolonged realized losses to realized profits has marked the recovery from bear markets. This is a regime shift and an encouraging sign for the bottom formation.
Realized profits mean that investors are taking advantage of the recovery to realize gains. Without sufficient demand to absorb profit-taking, it can slow the market.
Can Bitcoin establish support and build enough strength for another leg up? We'll use the ETF and STH Cost Bases to identify key resistance and support levels. Even more interestingly, I'll introduce a new chart showing Cost Basis Velocity, revealing how the underlying market structure is developing!
