Bitcoin retreats after crypto bill setback, Fed next

CLARITY Act vote fails, but market blow looks contained, Fed next

The August rally, which revived momentum in the battered crypto market, is facing renewed pressure after the US Senate failed to advance the key regulatory bill, the CLARITY Act, in a procedural vote on Tuesday. The legislation fell short of the 60 votes required to move forward, dealing a significant setback to the industry's push for clearer US crypto regulation.

The outcome was particularly disappointing given the lack of bipartisan backing. No Democrats supported the measure, while four Republicans also opposed it, signalling hurdles even within crypto-friendly President Trump’s own party. Disagreements persisted over ethics restrictions surrounding public officials' crypto interests, stablecoin rewards and other safeguards, despite last-minute revisions.

The CLARITY Act aimed to establish a federal framework for digital assets and clarify oversight between the SEC and CFTC, providing greater regulatory certainty for the industry.

The market reaction was swift. Bitcoin dropped as much as 5.3% below $75,000, while Ether fell more than 8% to $2,350, marking their sharpest intraday declines since June. Crypto-linked equities were also hit, with leading exchange Coinbase (-13%), stablecoin issuer Circle (-11%) and largest corporate Bitcoin treasury company Strategy (-5%) suffering significant losses as investors reassessed the outlook for regulatory progress.

Still, the blow looks relatively contained. Doubts about whether the bill could secure enough votes had already grown ahead of the vote, while Bitcoin has since stabilized around $75,000-$76,000. Importantly, Tuesday's ballot was a procedural vote rather than a vote on final passage, meaning the legislation is stalled rather than formally defeated. However, the approaching midterm elections leave limited time to revive it this year.

The timing adds another layer of risk. The setback comes as rising interest-rate expectations are already reducing the appeal of risk-sensitive assets such as cryptocurrencies. That puts today's Fed decision firmly in focus. With Bitcoin struggling to regain $80,000, a hawkish Fed could add to selling pressure, while a less restrictive policy signal could offer some relief.

Where does regulation go from here? 

With the legislative route becoming more challenging, attention increasingly shifts towards the SEC and CFTC. Both agencies have already moved ahead with crypto initiatives, with the SEC proposing a framework that could allow eligible crypto projects to raise capital under lighter regulatory requirements.

Such measures could provide some clarity while Congress remains deadlocked, but agency rules may prove less durable than legislation as they can be challenged or altered by future administrations. This leaves longer-term regulatory uncertainty unresolved even as crypto's integration into mainstream finance continues.

The political calendar adds further uncertainty. With Congress approaching its pre-election recess, comprehensive crypto legislation may have to wait until 2027. If Democrats regain the House, and potentially the Senate, the regulatory path could become more challenging for the industry, extending uncertainty around the rules governing digital assets.

ETF outflows add to caution

Institutional flows have also weakened. US-listed spot Bitcoin ETFs recorded $450.4 million in net outflows on Tuesday, reversing Monday's $159.9 million inflow and marking their largest daily withdrawal since late June. Fidelity recorded the biggest outflow, followed by BlackRock's iShares Bitcoin Trust.

The ETF reversal adds to concerns that the strong August recovery is losing momentum, although it does not yet point to broader capitulation.

Bitcoin faces another test; second weekly loss in sight?

Bitcoin is attempting to stabilize around $75,000-$76,000 following Tuesday's selloff, but remains below the 50-week SMA near $78,627 and the recent $82,000 peak. The RSI remains above 50, suggesting bearish momentum has yet to take full control.

Holding above $75,000 could preserve the recovery and allow another attempt towards $80,000-$82,000. A decisive break lower, however, could expose the 20-week SMA near $69,750, while a fall below the 200-week SMA around $65,415 would significantly weaken the broader outlook.

Key takeaway

For traders, caution rather than capitulation remains the message. The CLARITY setback removes an important near-term catalyst, but Bitcoin is still defending key support. The Fed decision now provides the next test for whether the August recovery can survive.