Bitcoin’s latest move above its long-standing trading range appears to be driven primarily by improving expectations for U.S. crypto regulation, rather than concerns about currency debasement or broader macroeconomic factors, according to analysts at Citi.
Citi analysts highlighted several signals behind their view. Bitcoin’s reaction to the U.S. Treasury’s bond-buyback announcement was delayed, while Ether has recently outperformed Bitcoin, suggesting that the rally may be broader than a simple “digital gold” trade.
According to Citi, the durability of the rally could ultimately depend on whether stronger regulatory expectations lead to a recovery in Bitcoin ETF inflows. ETF demand has been relatively subdued since the major liquidations seen last October, and a sustained increase in inflows over the coming weeks could indicate that investors are becoming more confident in the U.S. regulatory environment.
The potential passage of the CLARITY Act has become an important focus for the cryptocurrency market. The legislation is intended to provide clearer rules for digital assets, and some industry participants believe Trump’s support could accelerate the push for a more defined regulatory framework.
Todd Ault, founder of Ault Blockchain, said the market is beginning to recognize the potential significance of the regulatory shift, particularly with President Donald Trump publicly supporting the CLARITY Act.
Liquidity remains another key factor
Bernstein offered a somewhat different explanation for Bitcoin’s latest rally, pointing to the U.S. Treasury’s decision to increase longer-term bond buybacks as an important catalyst.
Bernstein analyst Gautam Chhugani argued that crypto markets had faced weaker liquidity earlier in the year as geopolitical tensions and strong demand for AI and semiconductor investments absorbed capital. However, increasing reliance on debt to finance AI-related spending could eventually create additional liquidity that may benefit Bitcoin.
Chhugani also argued that greater regulatory clarity from the SEC and CFTC could remain in place regardless of the final outcome of the CLARITY Act, with the legislation scheduled for a September 15 vote.
Ether outpaces Bitcoin
Ether has performed particularly strongly during the latest cryptocurrency rebound.
Bernstein attributed Ether’s relative strength to its exposure to several expanding areas of the digital-asset economy, including stablecoins, tokenization and real-world assets.
The stronger performance of Ether is another reason analysts believe the current rally cannot be explained solely by Bitcoin’s traditional “digital gold” narrative.
Bitcoin ETF flows begin to recover
ETF activity is also showing signs of improvement.
Bernstein said Bitcoin ETF outflows have stabilized after reaching roughly $7 billion between May and June, equivalent to around 10% of assets under management.
ETF inflows subsequently reached approximately $1.1 billion through August 20, while total assets under management climbed above $85 billion, compared with around $70 billion in June.
If this trend continues, stronger institutional demand could provide an additional foundation for Bitcoin’s recovery.
Strategy’s Bitcoin position stabilizes
Bitcoin treasury company Strategy has also strengthened its financial position, according to Bernstein.
The firm reportedly has enough cash reserves to cover approximately 2.8 years of dividend payments. Its Bitcoin sales were limited to roughly 0.8% of its total holdings, primarily to support buybacks of its STRC preferred shares.
Bernstein expects Strategy to return to Bitcoin purchases as the nominal value of STRC approaches the $100 level.
What matters next?
The latest Bitcoin rally appears to be supported by a combination of regulatory optimism, improving ETF flows and liquidity expectations. Investors will now be watching ETF demand and developments surrounding U.S. crypto legislation to determine whether the breakout can develop into a sustained upward trend.