Clarity Act Progress Boosts Bitcoin | Trading the Markets w/ Kris Bullock

Bitcoin rallied on increased odds of the Clarity Act passing, but both prediction market odds and Bitcoin's price subsequently pulled back. Bullock views the price action as technically bullish because Bitcoin has broken back into a prior range and held for roughly two days, a traities indicator flipped green a couple of days before recording, and the weekly megatrend signal is on the verge of confirming but requires two consecutive weekly closes above the line with momentum.

Bitcoin ETF flows are negative by approximately five and a half billion dollars year to date, though the last three weeks have been barely flat or barely positive after several consecutive negative weeks. The Coinbase premium index is in negative territory, indicating US retail buyers are not participating, and Bullock argues that sustained large rallies have historically depended on a strong US retail bid. He believes the current move is being fueled by money rotating out of stablecoins rather than fresh capital entering crypto, meaning old money already in the ecosystem is preventing a drop toward the 40,000 range rather than driving a genuine bull market.

Bullock contends that institutions have been the biggest marginal buyer of Bitcoin over roughly the past year but have not been buying back after recent selling. His argument is that big money has no incentive to buy Bitcoin ETFs when risk-free assets offer nominal yields around 4% and real yields between approximately 1.83% and 2.9% across the one-year to thirty-year range. His financial conditions index weights real yields, credit spreads, the dollar index, and equity volatility equally. Real yields were favorable for nearly the entirety of Bitcoin's history from 2015 through 2022, but the regime changed around August 2022 when rates rose from near zero to over 5%, and real yields have not returned to favorable territory since. Since early 2023, Bitcoin has largely gone sideways except for narrative-driven catalysts including the ETF launch and the Trump election.

The dollar broke out of a long sideways range around the end of June and is now entrenched above that range, adding pressure to financial conditions. Global M2 has largely trended sideways since approximately April and needs to resume its uptrend by setting higher highs. The S&P 500 peaked around the end of May or beginning of June coinciding with financial conditions flipping strongly negative and a spike in real yields. VIX has come down and credit spreads have been favorable, and the latest CPI report showing lower inflation is a step in the right direction, but the elevated dollar driven partly by geopolitical tensions involving Iran and oil prices remains a headwind.

Bullock does not believe the current move represents a durable bottom or the start of a multi-month sustained rally. He predicts Bitcoin will rally to the 20-week or 200-day moving average and get rejected, similar to a prior rejection, and he has not yet started dollar-cost averaging. He is waiting for at least the first neutral candle on the financial conditions indicator on a weekly basis, with a better entry opportunity expected around a September to October timeframe. He identifies the DXY falling back below 100 as a positive signal. For a significant rally, he says conditions needed include a lower dollar index, a resuming Global M2 uptrend, easing real yields, and ideally an interest rate cut, noting that financial conditions moving from red to neutral rather than fully green would be sufficient based on past examples.

On the Clarity Act, Bullock sees it as essential for long-term regulatory stability rather than a near-term trading catalyst, warning that without passage, crypto remains exposed to future administrations rewriting the rules entirely. He expects that if the Act passes, Bitcoin will likely follow the same sell-the-news pattern seen around the ETF approval and the Trump election bump, and he views the period after the dust settles as the more actionable window.

Ethereum is in a near-term uptrend but Bullock argues that layer two activity does not meaningfully accrue value back to the Ethereum base chain. Ethereum Improvement Proposal 4484 gave greater incentive to layer twos and accelerated ETH's downtrend against Bitcoin following the shift to proof of stake in September 2022, which he identifies as the peak of the ETH to BTC pair. Transaction costs on Ethereum layer twos are now fractions of a penny compared to as much as 200 dollars in prior cycles, and Bullock views Ethereum as having made mechanically impressive changes that have nonetheless damaged it as an investment. ETH at the time of recording was priced at 1,935 dollars and was back up against a resistance level.

Bullock prefers Robinhood stock over Coinbase stock. Coinbase price action closely mirrors Bitcoin and peaked around October 6th alongside Bitcoin, while Robinhood has already reclaimed its major 20-week moving averages and is setting higher highs. For altcoins, Aerodrome is forming a bottoming pattern on the weekly timeframe with a breakout retest, higher high, higher low, and a return above its 20-week moving average, and a daily close above approximately 56 cents is needed to confirm continuation. Hyper Liquid has been in a strong uptrend since the start of the year but became overextended and is consolidating, with its 20-week moving average sitting at approximately 52 to 53 dollars.