Crypto markets absorbed a series of potentially negative developments last week without giving up ground, raising the question of where the underlying optimism came from.

The starting point is the US Senate's procedural vote on the CLARITY Act, a market-structure bill intended to clarify how digital assets are regulated, which failed as expected. Republicans hold 53 seats, short of the 60 votes required to advance legislation in the Senate, and Democrats showed little support for the bill or for the crypto sector more broadly. The market initially dipped, but the decline was brief because the outcome was already priced in — traders had positioned for the expected result, so there was little new information to react to. For the same reason, digital assets barely reacted to the Federal Reserve raising interest rates.

That, however, does not explain the rally itself, and several theories have been put forward.

The first centers on the US House Financial Services Committee's approval of a bill to create a strategic Bitcoin reserve, a step that moves the proposal toward legislated policy and makes the full House vote the next checkpoint. The measure can now proceed to a vote in the full House, and if it passes there, it would still need to clear the Senate and receive the president's signature. Under the proposal, Bitcoin held in the reserve could not be sold, exchanged, or pledged for 20 years — in effect, locking government holdings in place as a long-term reserve asset.

There are notable caveats. According to Arkham, the US government currently holds around 324,500 BTC, worth almost $29 billion — a substantial sum, but small relative to Bitcoin's $1.72 trillion market capitalization. Importantly, there has been no discussion of purchasing additional Bitcoin for the reserve, meaning the proposal would draw on coins the government already holds rather than introduce a new source of buying demand.

A second theory points to comments from Coinbase's CEO, who said: "We can't wait for senators forever. We don't need the CLARITY Act anymore. We'll turn to regulators. The SEC and CFTC will develop clear rules." The two agencies' overlapping jurisdiction over digital assets is precisely the ambiguity the CLARITY Act was designed to address. While the remarks may have given the market a boost, it remains difficult to see how the industry could bypass Congress and obtain clear rules directly from the SEC and CFTC.

A bigger factor may have been short sellers, with roughly $648 million in positions liquidated within just 24 hours. Liquidations force leveraged traders betting on a decline to buy back their positions as prices rise, and waves of forced buying on that scale can mechanically reinforce an upward move.

As for what comes next, the breakeven point for US spot Bitcoin ETFs sits at approximately $85,638–$86,000 — effectively the average cost basis of ETF holders — making sustained trading above $86,000 key to maintaining momentum. Levels tied to the average entry price of large investor groups are watched closely, since trading above them keeps those holders in profit, while trading below leaves them underwater on average. The difficulty is that there are currently few fundamentals to support that level.

The regulatory backdrop offers limited encouragement as well. The Fed has already raised rates and could do so again if inflation remains elevated, with each additional increase raising borrowing costs across the economy. The larger concern is that if Democrats win the midterms, pro-crypto legislation could become harder to pass, and the president could also face impeachment.

For those reasons, it may still be too early to talk about Bitcoin returning above $100,000. That said, if risk-on conditions return — for example, after the Iran conflict ends — the market could benefit.