Author: Zhou, ChainCatcher

On August 19, the cryptocurrency market suddenly heated up, with Bitcoin rising nearly 8%, touching around $70,000, breaking the stagnation zone that had lasted for months, and setting the largest single-day increase since March. Ethereum's increase that day was nearly 20%; cryptocurrency stocks also rose in strength, with Strategy up nearly 12%, and Coinbase, Circle, and BitMine all up nearly 10%.

According to Coinglass data, that day $2.975 billion was liquidated across the entire network, of which over $2.7 billion was in short positions, a scale higher than last year’s $2.466 billion short liquidation, making it the largest short liquidation in nearly two years.

As of the time of writing, in the past 24 hours, the total liquidation across the network reached $3.38 billion, with short liquidations exceeding $3 billion. Among them, Bitcoin liquidations were about $1.76 billion, and Ethereum liquidations were about $1.16 billion.

Looking at the situation, the market was mainly driven by two forces.

On one hand, there were signals from regulators, with the White House and the SEC and CFTC continuously releasing positive signals. On the other hand, macro liquidity increased as the U.S. Treasury suddenly announced an expansion of the long-end Treasury bond repurchase scale, directly lowering long-end yields.

However, on-chain data indicates that the market is still in a phase of surrender that has not yet completely cleared, has the crypto bear market really ended?

The White House Releases Signals

Yesterday, Trump met with a group of regulatory officials and executives from crypto and fintech companies in the Roosevelt Room of the White House, attendees included SEC Chairman Paul Atkins, CFTC Chairman Michael Selig, as well as representatives from exchanges and clearing institutions like Coinbase, Ripple, Gemini, Robinhood, Chainlink, Polymarket, Kalshi, Nasdaq, NYSE, CME, and DTCC. This event also prepared for the CFTC Innovation Advisory Committee meeting held on Thursday.

Before the meeting, Secretary of Commerce Howard Lutnick had a small meeting with Coinbase's Brian Armstrong, Ripple's Brad Garlinghouse, a16z Crypto's Chris Dixon, and Kraken's Arjun Sethi to discuss how to promote the passage of the CLARITY Act and how to keep crypto companies and related jobs in the U.S.

Trump's language this time was stronger than before. He stated that the government has completely ended its war on cryptocurrencies, and the industry is thriving; no one can stop it.

What’s more noteworthy is that he mentioned that the government is already discussing accumulating a considerable number or even large-scale Bitcoin and other crypto assets, as this could alleviate the pressure on the dollar. However, he did not disclose the execution plan, source of funds, or timeline; currently, it is merely a statement and has not yet translated into concrete policy.

On the legislative front, he continued to urge Congress to promptly pass a fair version of the CLARITY Act. Regarding the CFTC, he confirmed that Chairman Selig is actively working to bring Hyperliquid into the U.S. market in a compliant manner, which aligns with the previously approved first Bitcoin perpetual contract launched on a regulated exchange. After the news was released, HYPE prices increased by more than 20%.

Binance founder CZ stated that many people overlook the bigger picture; policies will not only benefit one company or project; a policy beneficial to the industry is beneficial to the entire industry. If platforms like Hyperliquid, which do not require KYC, can enter the U.S. market in a compliant manner, it will open the gates to the entire industry, allowing more Perp DEXs and decentralized services to cover users in the U.S. and globally, and U.S. consumers will benefit from better liquidity and pricing, which not only benefits Hyperliquid itself but will also benefit platforms including Binance.

In addition, Jonathan Gould, the director of the U.S. Office of the Comptroller of the Currency, revealed that activities related to digital asset charter approvals have increased eightfold compared to the Biden administration, and the OCC expects to finalize the GENIUS Act associated rules by November.

SEC's New Regulatory Details

Just the day before, the SEC officially proposed Regulation Crypto Assets New Rules, the core of which is to establish two exemption paths for token financing, along with a safe harbor clause.

The first is an exemption for startups. It allows a project to raise up to $5 million over four years without completing registration under the Securities Act of 1933. This pathway incorporates a principle-based narrative disclosure and does not mandate financial statements, thus lowering the bar.

The second is a financing exemption, which refers to the two-tier structure of Reg A. Tier 1 has a limit of $20 million every 12 months, requiring principle-based disclosure, discussions of financial conditions, and unaudited financial statements, along with ongoing reporting obligations. Tier 2 has a limit of $75 million every 12 months, requiring similar conditions as Tier 1, but financial statements need to be audited and ongoing reporting requirements are stricter.

The safe harbor clause is the most critical mechanism in this proposal. As long as the project completes or permanently halts its key management actions, the corresponding tokens can be exempted from the definition of investment contracts and will no longer be considered securities. This exemption applies federally first, simplifying the previous cumbersome state-level responses to securities registration requirements.

SEC Commissioner Uyeda believes the new regulations replace past practices of project parties guessing regulatory red lines with fixed thresholds and clear conditions.

However, multiple industry lawyers emphasize that this does not mean regulatory relaxation. Anti-fraud and anti-manipulation clauses are still effective, and the SEC can still enforce regulations afterward. To truly complete this compliance process, project parties need to bear compliance costs ranging from hundreds of thousands to millions of dollars.

The proposal is still in the opinion solicitation stage, and the solicitation period is 60 days from the date the relevant notice is published in the Federal Register, and has not yet become the final rule.

What Are the Legislative Hurdles?

The real conclusion on whether crypto assets are considered securities or commodities still lies with the CLARITY Act, but its current progress is still not optimistic. Data from Polymarket shows that after Trump's remarks, the probability of the bill passing this year has only slightly risen from 20% to 23%.

Senate Majority Leader Thune has already filed a cloture motion, setting the voting date for September 15. This is merely a procedural vote to decide whether to begin formal debate, requiring 60 votes in support. The Republican Party currently holds 53 seats, still needing at least 7 votes from Democrats or independent lawmakers to support this is not the final vote on the bill.

So, September 15 is a critical juncture, not the endpoint. Even if it smoothly passes this hurdle, the bill itself still has a few more tough obstacles to clear.

The SEC withdrew atokenization innovation exemption rule last Friday, possibly due to concerns that progressing now would disrupt the pacing of Congress's negotiations on the CLARITY Act. Brett Redfearn, president of Securitize, stated that the rule will be introduced after the Senate votes on September 15, possibly in early October.

Rob Nichols, president of the American Bankers Association, publicly called for tightening the provisions regarding stablecoin rewards in the bill, as he is concerned that if stablecoin platforms can effectively pay interest, bank deposits will accelerate their outflow to the crypto space. How ethical provisions and the texts from the Senate Agriculture Committee will be incorporated into the main bill is still under negotiation.

The Chief Legal Officer of GSR indicated that even if this administration establishes the safe harbor and exemption rules, it cannot rule out the possibility that a new administration might overturn the existing rules in the future. This reflects the inherent weakness of administrative means compared to legislative action.

Record Debt, Treasury Buybacks Doubled

The current backdrop is that the total federal debt in the U.S. has exceeded $40 trillion, with the 30-year U.S. Treasury yield momentarily surpassing 5.3%, marking a 20-year high.

The U.S. Treasury announced that between September 9 and November 4, it will at least double the upper limit of liquidity support buyback operations for 10-year to 30-year Treasury bonds from $2 billion to $4 billion per single operation.

After the announcement, U.S. long-term Treasury yields quickly declined, with the 30-year U.S. Treasury yield falling nearly 10 basis points, and U.S. stocks rising simultaneously.

Standard Chartered's Kendrick stated that this is the kind of operation Bitcoin loves, as Bitcoin has historically benefited from government liquidity interventions.

Fu Peng, chief economist of New Fire Group, believes that the recent coordinated intervention by the U.S. and Japan has preemptively dismantled the risk of Japan potentially selling off a massive amount of U.S. Treasuries, avoiding pressure on long-end U.S. Treasuries. The Treasury then doubled the long-end Treasury buyback scale, precisely lowering long-end yields and term premiums, aiming to avoid triggering a collateral liquidity crisis from interest spiral.

The U.S.-Japan coordinated intervention alongside hot money inflow has kept short-end rates pinned down and artificially lowered long-end rates, making the yield curve noticeably flatter. This supports the valuations of cash flow-strong large tech and AI companies and decreases the attractiveness of overseas arbitrage trades.

Strive CEO Matt Cole mentioned that the U.S. dollar index has shown lower peaks and lower troughs over the past 45 years, and is currently nearing a larger-scale decline phase. Bitcoin's previous major increases, including in 2017, 2020 to 2021, and 2025, were all accompanied by a notable weakness of the dollar. He predicts that the dollar may enter a new multi-year decline over the next 3 to 7 years, and if so, the macro environment for Bitcoin could be more favorable than at any other time in history.

Forbes discussed the Triffin Dilemma, suggesting that Bitcoin, with its fixed supply and absence of need for national credit backing, may gradually take on part of the role of a neutral reserve asset. These narratives span a 5 to 7-year timeframe, and their realization still needs time to validate, with limited short-term pricing reference significance.

However, this operation hasn’t been void of skepticism. JPMorgan strategist Jay Barry and others warned that without real fiscal consolidation, the market might view the Treasury's actions as lacking credibility, which could in the long term actually push up term premiums and yields. The U.S. economy is near full employment but still carries about a 6% fiscal deficit; relying solely on buyback operations can only address symptoms, not the root causes.

Brookings Institution researcher Robin Brooks pointed out that this is more akin to manipulating the yield curve rather than addressing the underlying problems of debt. According to calculations from BNP Paribas, at the current pace, the Treasury may buy back about $128 billion of related-term Treasuries a year, constituting about 30% of the issuance of those term Treasuries, but only about 2.4% of the market's outstanding debt, signifying limited leverage.

Jim Bianco, founder of research firm Bianco Research, humorously remarked: In the past, the market often said, 'The Fed panicked, and bond traders can stop panicking'; now it should change to 'Treasury Secretary Yellen panicked, and bond traders can only stop panicking.'

On-Chain Clearing Progress, Is the Surrender Phase Not Over Yet?

Policy and macro liquidity have resonated, but what stage are on-chain indicators at?

According to a glassnode report, Bitcoin's on-chain structure is still in a surrender phase. The cost basis for short-term holders has dropped to about $68,500, below the actual market average of about $75,800. The relative unrealized losses in this cycle peaked at about 25%, significantly lower than the previous cycles that typically exceeded 60% during the surrender phase.

In other words, the degree of loss this cycle is relatively shallower, but the distribution of holdings is more dispersed, which may require more time for true clearing.

Another critical indicator is the 90-day moving average of the realized profit-loss ratio, which is currently around 0.75. Analysts noted that historically, this indicator usually dips below 0.5 before genuine seller exhaustion occurs; it has not dropped to that level yet, indicating that selling pressure has not truly dissipated. Before this indicator breaks back above 2, any price rebound should be viewed as a local rebound rather than a trend reversal.

Additionally, analyst Murphy noted that this is the third time that Bitcoin has challenged the average cost line for short-term holders since entering the bear market in this cycle (STH-RP), which is viewed as the dividing line between bulls and bears. The logic is that each time the price approaches this cost line, it triggers short-term holders with lack of confidence to accelerate their exit, hence the price often fluctuates around this line in the bear market, retreating and then approaching it again, until it finally breaks through and seller power is exhausted, which is when this line can no longer block the trend reversal.

He also mentioned another signal for the bottom of a bear market, when the cost line for short-term holders falls below that of long-term holders; this signal has not failed in the past decade. However, from the latest data, the STH-RP has changed about -0.2% over the past 7 days, and the LTH-RP has changed about -0.8%; at this rate, the two lines are unlikely to cross in the short term.

Moreover, the Coinbase Premium Index, which represents the real demand for U.S. spot markets, continues to be negative, showing no significant return yet.

However, data shows that the directional premium of the 30-day perpetual futures market significantly turned negative during the recent decline but has clearly rebounded and re-entered positive territory. This indicates that leveraged longs are willing to pay a premium to re-establish their long exposure, and speculative risk appetites have improved. Currently, the cryptocurrency fear and greed index has risen to 62, up by 16 points from yesterday, while the 30-day average is just 30.

How to View This Round of Rebound?

Putting the above information together, a relatively objective conclusion is that this rise is driven simultaneously by expectations from regulation, macro liquidity operations, and leveraged short covering, amplifying each other's effects.

Analysts point out that this surge reflects overcrowded short positions in the market, which, as prices shift upwards, forces buyers to cover their shorts, further amplifying the rise.

“A bullish candle changes beliefs,” and indeed, there are many voices suggesting that a bottom has emerged or is forming. F2Pool co-founder Wang Chun even boldly asserted that the bear market has ended.

According to quantitative trader Killa, if we compare Bitcoin's current state with the bottom of 2022, short-term corrections are not ruled out, but Bitcoin is likely to hold previously established low points and will not truly break below them. The verification method is to see if BTC falls back to the prior consolidation zone and shows clear weakness on the 4-hour and daily charts; if not, the trend established still holds.

Optimistic voices from the institutional side are also increasing. Bitwise CIO Matt Hougan believes that the crypto market is re-pricing on-chain assets that generate real income, with the valuations of certain protocols expected to be adjusted upwards alongside revenue capture capabilities. He noted that Bitcoin has become insensitive to negative news, and the bear market might be nearing its end.

At the same time, he provided a scale estimate: the four major wealth management platforms on Wall Street, Morgan Stanley, Wells Fargo, UBS, and Bank of America Merrill Lynch, manage approximately $20 trillion in assets; if they allocate just 1% to 2% of their portfolios to crypto, that represents a continual inflow in the hundreds of billions of dollars.

Bitwise Europe's August report also noted signs of renewed acceleration in ETP inflows, with supplies from long-term holders remaining high and Treasury demand stabilizing. Grayscale's research director Zach Pandl had also indicated that the bottoming time for this bear market might be earlier than the traditional four-year market cycle.

However, the more cautious stance now has a clear central logic, which can be summarized in three points:

• On-chain confirmations are yet to be validated, as Glassnode's realized profit-loss ratio 90-day moving average has not dropped below 0.5, nor has it regained the 2;
• U.S. spot demand has not yet returned, with the Coinbase Premium Index still remaining negative;
• The credibility of the Treasury's buyback operations is in doubt, as both JPMorgan and Brookings Institution worry that this is merely a manipulation of the curve rather than a solution to the underlying debt problems.

As for the future, on the policy front, attention can be focused on the September 15 cloture vote for the CLARITY Act and whether the SEC's new regulatory opinions can smoothly materialize after the comment period. Until these signals are genuinely realized, policy optimism and macro liquidity easing are better understood as lowering downside risks and improving rebound conditions, with trend reversal still needing confirmation.