Congressional Recess Looms Over Clarity Act & Bitcoin, Ethereum's "Relative Strength"

Welcome back to Crypto Corner here on Schwab Network. I'm Jenny Horne and joining me today is Nate Peterson, director with the Schwab Center for Financial [music] Research. So Nate, Congress is getting ready to head into its August recess, but we're still hearing debate around the Clarity Act and [music] of course the future of crypto regulation. So what should investors be watching and how important is progress on this bill? >> Yeah, good good morning, Jenny. Well, you know, there's been a lot of press, you know, just around the the Clarity bill. House already voted last year, passed. It's basically up to the Senate Senate Banking Committee. There's been some back and forth as we know with the treatment of stablecoins. The two issues, Jenny, are kind of still stablecoins as payments or as deposits and the language around that. And you know, we heard the likes of Diamond saying, "Well, if you're going to be putting, you know, allowing deposits on stablecoins, then you need to be treated as a bank and fall under that regulation." The bottom line is, you know, Congress has a lot on its plate. I looked at the Kalshi odds of of the Senate voting on the Clarity Act before August recess, which is basically next Friday. It is when they're going to go into recess. And it was, gosh, 80% around July 20th. Now it's 51%. So if we don't get a vote before next Friday, they go into recess. You've got midterms coming up. Probably not too likely that you get a vote before the midterms. And then after the midterms, what's the makeup of Congress? Is going to be a question. So Jenny, it doesn't look like the odds aren't in favor of getting a vote or a passage. Anything can happen. 51% You can say it's a coin flip. But this is something we'll monitor. Of course, for the crypto bulls out there, they would basically note that in any clarity around, you know, payment rails, around stable coins, digital assets at the federal level leads to more adoption, ultimately would be bullish for the crypto sector. >> Okay, so there is also this renewed push in Congress to close the crypto wash sale tax loophole, which currently allows some investors to sell and repurchase digital assets while of course harvesting those tax losses. So how big of a change would that be and what impact could it have on investor behavior if it becomes law? >> Yeah, so yeah, Jenny, this is more maybe for awareness for our crypto community just that this is being presented up for debate. A bill was introduced back in June by a Republican to basically classify digital assets within the same tax kind of system that securities are subject to. And of course, we know the wash sale rule. If you own stock, you have a one one year, you know, uh capital gain on it. You know, if you sell it, you can't buy it back within a certain time period in order to reap the tax benefits without changing the constitution of your portfolio. In cryptocurrency land, that is for the specifically to owning Bitcoin, ether, etc. There is no tax loophole. So why is it coming up now, Jenny? Well, Bitcoin's down 50% from its high back in October. So if you let's say you bought at 125k, you could sell it. You could have the tax event and then just buy it back. Um I'd say there's a a couple things also just to be aware of that if you're in the or the ETFs or the exchange-traded products uh of, you know, Bitcoin, Ether, etc. Uh those are going to fall under the securities laws. So, this applies to the specific coins, the digital assets, the classification of property when we talk about uh Bitcoin and crypto in general. And, you know, is it that big of a deal? Well, it is probably net net not bullish for the crypto community just because if it was seen as, you know, somewhat of a an advantage uh to directly owning crypto, well, that potentially uh could be going away. Um but, then there's also discussions that, you know, let's say they do put the wash sale in place for crypto that you could sell Bitcoin and maybe buy Ether and argue that those two are not identical and therefore excluded. Now, this discussion falls into the realm of taxes. So, I would I would definitely uh advise that you talk to your tax advisor uh when discussing these these types of matters uh if you own crypto, if you own the ETPs, ETFs, etcs, and you want to know the implications uh from from a, you know, a tax perspective. So, please do that before. So, but this is just to put it on the radar uh for our crypto community Jenny. >> Okay, so, Nate, let's take a look then at the relationship, of course, between Bitcoin and Ethereum. And I also just dive into the technicals on both of these these names because Bitcoin seeing a modest improvement now at least holding above 60,000, but obviously been stuck in this lowered range we've seen as of late. >> Yeah, Jenny, yeah, let's talk technicals. Let's talk Bitcoin. We'll start there. Uh if we can throw up a chart here. Let's do a weekly chart just because this 200 uh week uh SMA, simple moving average, um you can't quite see it on the chart, but in in February, we went down on a weekly basis and basically got to 60,000, found some support, found some support, flirted, got as low as 57,850. Some technicians are calling 58,000 support there. When you pull the chart back and you go on a longer-term basis, I'm utilizing the 200-week. That's around what, 61k? We'll call it there. Bottom line is, we've been in this consolidation range here for a couple months, between 60 and 65. But Jenny, what I would point out is that number one, we're holding above that 200-week SMA. And number two, if you look at what is happening with the Nasdaq and and the chips, the socks is down 25% in about 5 weeks. The Nasdaq or Nasdaq 100, both, they're about 10% down. That's a correction. Meanwhile, on a relative basis, if we do a relative Bitcoin to what used to be, you know, Bitcoin was highly thought to fall into that bucket of a speculative tech Nasdaq type risk asset. Well, there's been some relative strength here. There's been a bid to Bitcoin here over the past couple of months. So, if you're bullish, we've talked about this before Jenny, but yeah, hold above that 200-week SMA. And then seasonality, potentially, I should say, kicks in around September, October. Meaning the four-year cycle. The length of these drawdowns that we have. Yes, the the magnitude of the drawdown varies, but the length is very similar in terms of when we can expect some kind of a rebound, the stabilization. If we can stay sideways here until September, October, that would, I would think, bode well from a seasonality perspective for the bulls. Not a guarantee, but uh that's kind of the the best that we would hope for. Now, if we get the Clarity Act passed, you know, anything could happen. Uh but let's hop over to Ethereum because speaking of relative strength, if you look at what's happening with Ethereum relative to Bitcoin, Ethereum is up about 25% off the lows. Uh so, there's been some relative strength here that's going on. We've got a daily chart up here on the uh Ethereum futures. It's a back above its 50 SMA there. Um up about 25% off the lows. What's going on here? I suspect that there is this relative strength showing up in ether because of the potential to get that Clarity Act. Why? Because roughly 50 to 60% of stablecoins run on the Ethereum network. And if adoption increases, if the Ethereum network is utilized uh or adopted in higher capacity, the thesis would be perhaps that would be bullish for the price of Ethereum. And so, I'm just noting Ethereum probably looks the best out of the crypto world over the last 2 months right now. >> Okay, I like that. A good place to leave it. So appreciate your time today, Nate Peterson, director of derivatives research and strategy with the Schwab Center for Financial Research. Thank you so much for joining us today, and that's going to do it for this edition of Crypto Corner. I'm Jenny Horn. We'll see you again next time.