Bitcoin traded around $76,140 on Wednesday morning, down 0.9% on the day and 4% for the week, after U.S. senators blocked the Digital Asset Market Clarity Act, a market structure bill aimed at clarifying federal oversight of the digital asset industry. Analysts argued that the legislation's failure, while "disappointing," carries less weight for Bitcoin's price than the Federal Reserve's policy decision due the same day.

Federal Reserve in focus

Stephen Wundke, strategy and revenue director at Algoz, put the odds of a quarter-point rate increase at 93%, in line with CME FedWatch, a widely watched gauge of interest rate expectations priced into futures markets, meaning the decision itself "appears to be a given" and shifting attention to the accompanying language. Those odds stood at 33.1% a month ago.

"Dovish signals about this being a protective move" could set crypto up for a strong final quarter of the year, Wundke said, noting that October and November are historically Bitcoin's best-performing months. He cautioned, however, that hawkish remarks from Fed Chair Kevin Warsh could see Bitcoin retest its $63,000 low.

Traders step back ahead of the decision

Trading data suggest investors had already reduced exposure before the announcement. Talos recorded a 28% net buying tilt toward stablecoins — the dollar-pegged tokens traders use to hold cash-like balances on exchanges — ahead of the decision, compared with an average 8% selling tilt around previous meetings of the Federal Open Market Committee (FOMC), the Fed's rate-setting body. Buying conviction in Bitcoin fell from 10% to 3%, and in Ethereum from 23% to 9%, according to a note from research analyst Cooper Duschang shared with Decrypt.

The two ends of the market are moving in opposite directions: hedge funds remain net buyers with a 25% tilt, while systematic and quantitative strategies have swung heavily toward selling. Investors are "reducing risk and holding greater liquidity ahead of the Fed," Duschang said, potentially leaving capital "available to deploy once the decision removes some of the uncertainty."

He pointed to the last time the Fed raised rates, in July 2023, when Bitcoin barely moved because the increase had been priced in beforehand. Order-book depth has remained broadly stable this week, he added, and the signal to watch afterward is "whether stablecoin capital moves back onto exchanges."

'Liquidity bottom,' not a policy bottom

Tim Sun, senior researcher at HashKey, argued that while the Clarity Act's failure may extend the market bottom, the "true pricing mechanism" for this downturn remains "U.S. dollar liquidity, rather than congressional legislation."

"Even if this bill had passed, it would not have directly triggered a new major bull market rally," Sun said, pointing to "tighter financial conditions alongside uncertainty regarding Federal Reserve policy" as U.S. Treasury yields — the benchmark for borrowing costs across the economy — move back toward 5% with rising energy prices and inflationary pressures. "What the market truly needs to wait for may not be a policy bottom, but a liquidity bottom," he said.

Prediction market users remain bullish

On prediction market Myriad, owned by Decrypt's parent company Dastan, users place a 72% chance on Bitcoin's next move taking it to $84,000.

The limits of regulatory authority

"The failure of the Clarity Act, whilst disappointing, is not a dagger to the heart of crypto," Wundke said, noting that regulators have already stated their intention to write crypto rules to bridge the gap.

CFTC Chair Michael Selig directed staff in August to draft a crypto market structure regime using existing authority, and SEC Chair Paul Atkins has said his agency is ready to do likewise. Sun cautioned that agencies "can interpret the powers they already possess, but they cannot write a new rule to invent power that Congress never granted them." The CFTC's spot-market authority over Bitcoin and Ethereum extends only to fraud and manipulation — a narrower remit than the agency's authority over futures markets.

Institutions seeking certainty that outlasts a presidency will move slowly, Sun said, because a future administration or agency leadership "could still rules, revoke exemptions, or reinterpret regulatory boundaries." The cost falls unevenly, he added: established platforms can work case by case, while DeFi and smaller projects must buy certainty through legal opinions and litigation, which "will dramatically drive up project costs."

Hong Yea, co-founder of onchain venue Grvt, argued that demand reroutes to venues that "don't require that legal certainty to offer credible custody protection in the first place." He advised watching funding rates and open interest — two derivatives-market gauges of trader positioning — noting, "That pattern, not the headline dip, is what tells us whether this is sentiment, or a real shift in the thesis."