With the U.S. midterm elections approaching, crypto markets have begun to recover even as the Digital Asset Market Clarity Act remains stalled in the Senate. Bitcoin has rebounded from around $75,000, while spot bitcoin ETFs have returned to net inflows. At the same time, the SEC and CFTC are advancing market rules through proposed regulations and other administrative actions. Whether the recovery can extend will depend on demand, the macroeconomic backdrop and whether the regulators' proposals can be implemented.
Senate Deadlock Reduces the Odds of Passage
The Digital Asset Market Clarity Act is intended to establish a regulatory framework for the crypto industry. It would divide responsibilities between the SEC and CFTC, define certain digital assets, commodities and industry participants, and introduce registration and disclosure requirements. French Hill, the Republican chair of the House Financial Services Committee from Arkansas, first introduced the bill in May 2025. The House passed it in July of that year.
The Senate failed to advance the measure on September 15, with 49 senators voting in favor and 50 against. The bill fell short of the 60 votes needed to proceed. Democratic senators said negotiations would continue, with disputes covering ethics provisions, concerns about deposit flight, and the proposed regulatory and consumer-protection framework. Polymarket traders put the odds of the bill becoming law before year-end at just 5%. With limited Senate floor time before the midterms and the added difficulty of a post-election lame-duck session, the legislative timetable has narrowed further.
The crypto industry has long sought clearer rules to support business development, but the bill's details have drawn mixed reactions from investors and industry participants. Even with the legislative process slowing, regulators continue to develop their own policy measures.
SEC and CFTC Advance Separate Rulemaking
In September, the SEC proposed an "innovation exemption" that would create a route for issuing and trading tokenized stocks on blockchain networks. The CFTC separately issued no-action relief indicating that it would not pursue enforcement against certain crypto trading and prediction-market platforms offering "passive software."
Regulatory activity continued into October. On October 1, the SEC proposed rules covering crypto-asset custody by investment advisers and regulated funds. On October 5, the CFTC issued an advance notice of proposed rulemaking that considers creating a new registration category and establishing federal requirements for crypto exchanges offering leverage, margin or financing to retail customers.
The SEC had previously proposed a broader crypto-asset regulatory framework in August, including exemptions aimed at financing and startups. The CFTC had also directed staff to examine incorporating crypto-market-structure rules into formal regulations. These steps show that agencies are continuing their policy work after Congress stalled, but none of the proposals has become a final rule.
ETF Inflows Return as Bitcoin Reclaims Key Levels
Bitcoin briefly moved toward $75,000 after the Senate vote, dragging crypto-related stocks lower. The market then rebounded as the SEC and CFTC released successive regulatory measures. Bitcoin moved above $80,000 around September 18, held above that level and returned to a price range last seen around the beginning of January. The recovery also took place as risk assets broadly strengthened.
Joel Kruger, digital-asset market strategist at LMAX Group, attributed the rebound to the return of spot demand, ETF inflows and short covering. He also pointed to softer inflation and less aggressive expectations for Federal Reserve policy as supporting factors. In his view, renewed ETF inflows indicate that the legislative setback has not interrupted institutional demand. Some investors are increasingly treating digital assets as a long-term portfolio allocation rather than simply a trade tied to the passage of a particular bill.
Data from SoSoValue showed that spot bitcoin ETFs recorded more than $2.95 billion in cumulative net inflows after the Clarity Act vote. From January through July, the products had posted cumulative outflows of $5.29 billion. In August, spot bitcoin ETFs recorded $3.52 billion in inflows.
Kruger said the SEC and CFTC actions could improve the industry's credibility, but exemptions may carry conditions or be temporary, while the proposals remain unfinished. The agencies must also operate within their existing statutory authority. Congress could provide broader and more durable authorization through legislation, but the regulatory process can continue while lawmakers negotiate.
VanEck Sees Selling Pressure Easing
Matthew Sigel, head of digital-asset research at VanEck, said most of the regulatory disputes in Washington currently have limited direct relevance to bitcoin itself. He argued that bitcoin's largest drawdown in the previous cycle, roughly 80%, was mainly linked to unregulated custody and embedded leverage. Bitcoin ETFs have addressed part of the custody problem, while a significant share of leveraged trading has moved to regulated venues such as CME Group or is reflected on Strategy's balance sheet.
Sigel said bitcoin typically follows a roughly four-year cycle linked to halving events, which reduce new mining output and reinforce scarcity. He described the current year as one that could have been relatively weak within the cycle. VanEck data showed that when bitcoin fell below $60,000 and its 200-week moving average during the summer, realized losses, loss-making holdings and forced selling all increased. By late summer, the data pointed to a sharp reduction in selling pressure.
Sigel also cited the U.S. Treasury's announcement in August that it planned to buy back longer-term bonds. Bitcoin subsequently broke higher on rising volume, moving from about $60,000 to nearly $80,000. As concerns about debt and fiscal deficits intensified, bitcoin's correlation with gold reached a multiyear high, and bitcoin later advanced alongside a recovery in trading volume. VanEck believes investors may become more willing to buy on price pullbacks. Sigel said the firm has a high degree of confidence that the cycle low has already passed.
Proposed Rules Face Legal Limits
Genna Garver, a partner at law firm Troutman Pepper Locke, said rules advanced under existing SEC and CFTC authority could face more legal challenges than a framework enacted directly by Congress. The SEC is relying on exemptions and interpretive authority under the securities laws to pursue its proposals. If the Clarity Act became law, the SEC would receive explicit statutory authority. Without that authority, Garver said, final rules would be more vulnerable to litigation and could be easier for a future SEC to revise or withdraw.
The CFTC's authority over spot digital-commodity markets is more limited and focuses mainly on anti-fraud and anti-manipulation enforcement. Garver expects the SEC's use of exemption authority and the CFTC's effort to bring the crypto-asset market within its powers over leveraged and margined retail commodity transactions could both face legal challenges. The existing proposals also cannot guarantee the bankruptcy protections or spot-market licensing regime that legislation from Congress might establish.
Garver said rules based on clear congressional authorization would have a stronger legal foundation. She expects the Clarity Act to be effectively blocked for the remainder of the current Congress, although the draft developed in recent negotiations could become a starting point for talks in the next Congress.
What Could Put Bitcoin Back Above $100,000
Kruger said one of the key variables for crypto markets in 2026 will be whether slowing inflation and wage growth lead to lower U.S. Treasury yields and a weaker dollar, improving financial conditions for bitcoin, ether and other assets. Although bitcoin and ether remain down for the year, LMAX maintains a constructive year-end view. A weaker dollar could help bitcoin move back above $100,000 and ether break through $4,000, but those levels would require sustained demand and improving financial conditions.
Spot bitcoin ETFs remain negative for the year overall, although after breaking higher last month, some products have pulled back into or near their respective buy zones. The iShares Bitcoin Trust (IBIT), VanEck Bitcoin Trust (HODL), Grayscale Bitcoin Trust (GBTC) and ARK 21Shares Bitcoin ETF (ARKB) have all retreated toward their 21-day moving averages. Over the past several weeks, they have traded within their respective buy zones.
Among crypto-related stocks, Coinbase (COIN), Circle Internet Group (CRCL) and Strategy (MSTR) have each rebounded from their 2026 lows but remain down for the year. Bitcoin and other crypto assets have not recovered their 2025 highs. Further market repair will depend on the direction of fund flows, the dollar and interest rates, and the next steps for the SEC and CFTC proposals.