The CLARITY Act Failed. What Happens to Crypto Now?

Maggie Lake (0:00)

There's a lot of questions and a lot of eyes on this Clarity Act that Congress failed to take up once again.

Brett Rentmeester (0:06)

People had high hopes for it, and it was really dead on arrival. If stable coins can pay all of this interest, and we're only paying a fraction of that, all the money is going to leave the banks, we think that's going to open the gates for banks and brokerage firms and all sorts of financial participants to start tokenizing assets.

Maggie Lake (0:30)

Hello, everyone. Welcome to Wealthion. I'm Maggie Lake. Joining me today to discuss the outlook for crypto assets is Brett Rentmeester, founder and managing director of WindRock Wealth Management. Hi, Brett. It's great to have you on again.

Brett Rentmeester (0:40)

Hi, Maggie. Great to see you as well.

Maggie Lake (0:43)

So oil and bonds have been stealing the headlines lately, but crypto has been surely but steadily staging a comeback. It seems like we have Bitcoin back at 85,000, at least for the moment, high point of the year. Ethereum has been rallying really since August. What's going on? Are we seeing the seeds of a new sort of chapter or bull run here?

Brett Rentmeester (1:03)

Well, you know, honestly, I think cryptocurrencies, Bitcoin and Ethereum, as you mentioned in particular, is the two largest, are doing what they've always done. You know, they go through massive rallies like we saw last fall, and then they crash so hard that everybody forgets about them and thinks the story is over. And just when that happens, you know, they're back from the ashes. So you know, the one unique thing about cryptocurrencies is they have historically had kind of a historical pattern that's people call it the four-year cycle, that's been around this event every four years for Bitcoin, which is referred to as the halving, when the inflation rate of Bitcoin gets cut in half. So in other words, Bitcoin is still releasing some new Bitcoin into the system to benefit the miners and the people supporting the ecosystem.

But every four years, that inflation rate of how many are released gets cut in half, a halving. And when that occurs, there have been some pretty strong historical patterns of maybe the high has hit within 18 months of that, and then look out for a nasty 12-month period, which that historical cycle would say we've been in. Now, the question is, have we seen the lows? We got to 120,000 last fall, we got as low as 58,000 plus or minus this summer, and like you said, we're around 85,000 strong a rally since this summer. And I think, listen, on a long-term basis, we think these are good entry points, but based on the historical cycle alone, not investment advice, just looking at cycles, you know, some people think there could be one more washout later this fall that marks the bottom. Now, we don't know if that will happen.

Patterns are never identical, you know, period to period, but there has been this strong four-year cycle. And the good news is, whether we're at the bottom or close to it, this should mark relative lows for a more abundant period in the couple years ahead.

Maggie Lake (2:59)

Which is gonna be welcome news to some folks who are in that. But I think it's interesting for the rest of us, who maybe, I think it's fair to say, you know, are watching it, maybe have a little bit of it, maybe wonder if we should be adding to it, because we're always talking about diversification, you know, owning non-correlated assets in this environment we're in.

So one of the questions on that, I think that sort of larger issue has really been legislation. I know there's a lot of questions and a lot of eyes on this Clarity Act that Congress failed to take up once again. Is that a headwind we have to watch out for? Why is everyone paying so much attention to that?

Brett Rentmeester (3:40)

Yeah. Well, let's first paint the picture of where we've been in crypto in general. We've been still in the wild west in a period where there was no regulation really in the US and inconsistent enforcement.

So sometimes going after a company that seemed to be doing everything right, and yet having some fraudsters on the other end get away with something. So it's a very messy environment, right? Whether you're running a financial services firm or you're an entrepreneur or you're an investor, we all want a set of rules where we can understand, you know, what the boundaries are, right? And so we haven't had that, and yet crypto has still succeeded because there's enough of a grassroots interest by investors and entrepreneurs. But that being said, we had this Clarity Act. And what did that mean? Well, clarity, clarifying rules, very basic, you know, and really the clarification was of each particular cryptocurrency or token, who would regulate it? Who would this be a security for the SEC to regulate? Or would this be a commodity for the CFTC or the Commodity Future Trading Commission to regulate? Now there's a lot of nuance in how it would go one way or the other. But Bitcoin and Ethereum were deemed to be commodities already and not securities. So the reason that's important is because there's very different rules that all these institutions, exchanges and even investors have to think about. And so this act, which by the way, had broad bipartisan support from the House a year ago, people had high hopes for it and it was really dead on arrival. It didn't even get enough votes to kind of push it to the next debate stage. It could come back, but for right now, that is not the path that's going to push regulation forward.