Crypto Market Sees Sudden Decline After CLARITY Act Approval

The cryptocurrency market saw a sudden drop after the Senate Banking Committee cleared the CLARITY Act on Thursday. Despite initial gains following the vote, prices plummeted as traders unwound their hedges and took profits.

The timing of the options expiries also played a role in the market's decline. Deribit reported $2.6 billion in Bitcoin, Ethereum, XRP, and Solana options expired on Friday, with max pain below spot for every major coin. This led to mechanical selling pressure as traders unloaded their hedges.

Rising Treasury yields were another factor contributing to the market's downturn. The 30-year Treasury yield jumped to 5.114%, a 12-month high, while the 10-year yield hit 4.54%. Futures markets now price a 44% chance of a Fed rate hike by December.

For the slide to reverse, one of three things needs to happen: cooler inflation data or an Iran de-escalation that pulls oil prices down, a surprisingly dovish statement from Kevin Warsh, or institutional ETF flows flipping back to inflows. Over the next two weeks, investors will be watching Bitcoin's reclaiming of its 200-day moving average, Warsh's first public statement, and BTC ETF flows.