Bitcoin Surges as Institutional Demand, Short Covering, Clarity Act Progress Converge — 2nd Update

By Jason Chau and Emese BarthaBitcoin rebounded sharply from weeks of low volatility and tight range-bound trading as institutional demand for the asset picked up.The cryptocurrency jumped more than 9% to hit a peak of $79,455 on Friday, its highest level since late May, according to LSEG data. It last traded at $77,425, up 6.6% for the day.iShares Bitcoin Trust ETF rose 6.5% today to $43.88 a share, putting it on pace to close at its highest level since May 21, and puts it close to its largest percentage gain since March.The sharp gains come as a combination of catalysts converge. According to Zaye Capital Markets's Naeem Aslam, a jump in institutional spot demand, coupled with rising expectations of lower Treasury yields and forced buying from certain traders to close their losing bets have triggered the rally.Bitcoin has, along with gold and silver, also benefitted from the U.S. Treasury's announcement Wednesday that it will raise its purchases of longer-term securities to at least $4 billion per operation from $2 billion, said David Morrison, senior market analyst at Trade Nation."The story here is that investors are looking for long-term safety as government debt across the developed world continues to grow," Trade Nation said. This was brought into stark relief as U.S. federal debt pushed above $40 trillion earlier this week, it added.According to Zaye Capital, U.S. spot bitcoin products attracted almost $520 million in net inflows on Wednesday, marking their largest daily inflow in about three and a half months.Dominic Weibel, head of research at Bitcoin Suisse, said the market has made it clear that $4 billion in buybacks "is not a particularly strong hand when it comes to the long end of the curve.""Gold and bitcoin immediately grasped this message and rallied in tandem.""While Bessent sought to calm the bond market, he may instead have fired the starting gun for the next leg of the 'hard money' trade," Weibel said.Moreover, U.S. President Trump's call for lawmakers to pass a "fair version" of the proposed Clarity Act regulating digital assets, which is currently under consideration in Congress and has been championed by Wall Street and crypto groups, signals the U.S. government is open to accumulating additional bitcoin and other digital assets if regulators approve, Aslam said."[The Trump administration's stance] materially changes the regulatory risk premium surrounding bitcoin because clearer rules can make banks, asset managers and corporations more comfortable allocating capital to the sector," he said.Traders are also reassessing the broader macro environment, which is becoming more constructive to bitcoin."Corporate and economic growth are strong by most measures, but the inflation and rates overhang is real, and companies will have to reassess how they grow in a sustained higher-rate environment," Jeffrey O'Connor, U.S. head of market structure and sell side ATS strategy at Liquidnet said in a note.The Treasury's announcement on buying back long-dated securities was not especially impactful in itself but the narrative around it raises a genuine question over whether the Federal Reserve or the Treasury is setting the direction of rates, he said.Thursday's U.S. economic data, including falling jobless claims, stronger manufacturing activity and a stable outlook for business inflation over the year ahead, point to resilient economic growth without signs of a fresh inflation surge."For bitcoin, that macro mix is important because it supports the possibility of easing financial conditions without signaling an outright economic downturn," Zaye Capital Markets said.News that U.S. government debt has reached $40 trillion also contributed to the rally, as investors grow increasingly concerned that higher debt-servicing costs could ultimately put pressure on the dollar and force policymakers to pursue looser monetary policy, said Matthew Sigel, head of digital assets research at VanEck.The prospect of a weakening dollar is pushing bitcoin higher, as investors start to see the cryptocurrency as one of the best dollar hedge, Sigel added.Bitcoin's rise comes as the DXY dollar index is down 0.1% to 98.804, staying just shy of Thursday's three-month low of 98.557. Front-month gold futures settled up 2.4% at $4,624.10 a troy ounce. Silver settled 2.1% higher at $69.446/oz.Write to Jason Chau at [email protected] and Emese Bartha at [email protected]