Bitcoin pushed above $79,000 on Friday as renewed institutional buying, improving macroeconomic conditions and a friendlier regulatory outlook in Washington combined with billions of dollars in short liquidations to accelerate the move higher.

U.S. spot Bitcoin ETFs attracted more than $1 billion in net inflows over two days as institutional demand picked up, while traders betting against the cryptocurrency were forced out of their positions, adding further fuel to the rally. The funds, launched in January 2024 after more than a decade of rejections by the Securities and Exchange Commission, have quickly become a primary conduit for institutional exposure to Bitcoin.

Bitcoin has climbed sharply this week, but analysts say the move began taking shape before the latest breakout. Even so, the price remains below the all-time high above $120,000 set in July.

"Bitcoin's move looks like a convergence of three forces," Lacie Zhang, research analyst at Bitget Wallet, told Decrypt.

Those forces, Zhang said, are a more supportive macro backdrop, declining regulatory risk in Washington and stronger spot demand. She pointed to the Treasury's expanded long-dated buyback plan, which she said weakened the dollar and revived the "debasement trade" across Bitcoin and gold. The term refers to positioning in scarce, hard assets as a hedge against the erosion of fiat currency value, and gold, the trade's traditional anchor, has set a string of record highs this year. At the same time, the administration of Donald Trump has pushed for crypto market-structure legislation, helping to reduce regulatory uncertainty.

The third element, spot demand, has been reflected in renewed ETF buying.

"U.S. spot Bitcoin ETFs saw roughly $517 million of net inflows on August 19 and about $606 million on August 20, while the break above $70,000 forced short covering and pulled momentum buyers back in," Zhang said.

The funds had already attracted $853.5 million over five consecutive trading sessions earlier this month.

Julio Moreno of CoinShares said ETFs purchased roughly 7,500 BTC in a single day, their highest daily level since April.

"The catalyst was the US Treasury announcement and Trump's remarks about the US Gov. potentially buying Bitcoin," Moreno told Decrypt. "However, Bitcoin spot demand was already showing signs of growth days before."

He added that similar periods of demand growth have historically been followed by a median 23% Bitcoin gain over the next two months.

Washington warms to crypto

Earlier this week, Trump called on Congress to pass a "fair version" of the Clarity Act during a White House meeting with crypto and finance executives. The legislation would establish a federal regulatory framework for digital assets and define the respective roles of the Commodity Futures Trading Commission and the Securities and Exchange Commission.

For Bitcoin, however, the immediate impact could be limited.

"Bitcoin already has relatively high regulatory certainty in the US. It is widely treated as a commodity, spot ETFs are established, and institutional access already exists," Moreno said. "The Clarity Act does not radically change Bitcoin's investability in the same way it potentially does for many other crypto assets."

Zhang said Trump's push for market-structure legislation is also changing how investors price regulatory risk.

"The regulatory risk premium is being repriced lower after Trump again urged Congress to pass crypto market structure legislation," Zhang said, adding that clearer rules make it easier for institutions to underwrite exposure.

The House passed the Clarity Act in July, but the legislation remains stalled in the Senate, which is expected to return to the bill in September. CFTC Chair Michael S. Selig said Thursday that he directed agency staff to explore crypto market-structure rules under the commission's existing authority.

Shorts get crushed

The shift in demand and sentiment left traders betting against Bitcoin exposed as the price pushed higher. Liquidations occur when exchanges forcibly close leveraged positions once losses eat through a trader's collateral; because closing a short requires buying the asset back, waves of forced covering can feed directly into the upward move.

Zhang estimates that more than $4 billion in crypto shorts were liquidated over two to three days, including roughly $2.7 billion during one 24-hour period and another $1.2 billion the following day.

"Bitcoin shorts alone were reported around $2.75 billion during the initial squeeze," she said. "It is one of the largest forced short covering episodes in recent crypto history."