What July CPI Means for Crypto & Clarity Act's Second Wind

**Jenny Horne** (0:11)
Welcome back to Crypto Corner here on Schwab Network. I'm Jenny Horne, and joining me today is Adam Lynch, Director of Equity Research at Charles Schwab. And so Adam, appreciate your time today. Let's start off with the big picture. We got July's CPI print that was in line with expectations. But how much of today's reports does that really matter for crypto, and what other macro catalysts could crypto investors be keeping on the radar over the next couple of months?

**Adam Lynch** (0:36)
Yeah, great question. And hi, Jenny, thanks for having me back here.
You're right. This morning's CPI print came in line with expectations of CPI, excluding food and energy increased 0.02 percent from a month earlier and 2.5 percent from a year earlier, marking the slowest annual increase since March of 2021
This report essentially suggests that the impact of the energy price shock from the Iran war has continued to fade in July. And overall is a somewhat bullish sign, I think, for crypto. The report likely increases the odds that the Fed will remain in a holding pattern here, or it at least delays a rate hike. That will hopefully lead to lower real yields, which typically results in risk assets rally. Now, what we need to keep an eye on going forward, I think, is this Jackson Hole meeting that's upcoming at the end of the month. I think it's going to be a little bit more important now, what sort of signals the Fed puts out there given today's report. Historically, any sort of dovish messaging around there will support crypto assets, while hawkish messaging from that meeting tends to strengthen the dollar and put pressure on these risk assets.

**Jenny Horne** (1:57)
Okay, so with momentum around the Clarity Act now appearing to stall a bit, what path do you see for crypto regulation from here?

**Adam Lynch** (2:06)
Yeah, that's been a really interesting one. Last week, I was on another program and mentioned that I think it's pretty much dead. But now, over the last week or so, we've had some rumblings coming from the Senate. So Senate Majority Leader John Thune said that the Senate plans to take this up as soon as they reconvene in September. Now, there's still some hangups on the bill regarding the illicit crypto and some of the ethics provisions that are put in there to prevent officials from enriching themselves. But there have been some interesting comments. Again, Senator Tom Thillis came out and said that last Friday, that this probably decreases the odds of about 50 percent in terms of the bill passing, but he does still see some opportunity for it.
Now, a lot of bipartisan blood and sweat has been put in to this bill, but I think it still may be difficult, even though they've had all that push to still get something done so close to the midterms. Now, the polymarket odds are down to around 22 percent or so. Those had been hovering around 50 percent earlier in the year.
And some of these recent comments from the CFTC Chairman and the SEC Chairman, they've shown that they're both willing to maybe have their agencies just kind of go ahead and create their own rules to tackle some of these same issues that were targeted in the legislation, should the Clarity Act officially kind of stall out here towards the end of the year.

**Jenny Horne** (3:33)
Yeah, I think a real possibility and a good points that you made there. But as far as then assessing all of this and looking at some of the key technical levels, what are you watching right now as far as Bitcoin and Ethereum? And what are the recent fund flows telling you?

**Adam Lynch** (3:47)
Yeah, we've really been kind of sitting in a sideways trading pattern for the last month or so, hovering somewhere around 63,000 or so for Bitcoin. Ethereum has been up around 18.5, 1900 or so.
It's been a pretty nice thing to see that the coins have kind of maintained that stability over the month. We've still had a lot of geopolitical concerns, things going on there. But we've been pretty slow and steady here. The flows have been great. After a pretty rough sort of May and June, we saw a bit of an institutional re-engagement here over the past few weeks. And US spot Bitcoin products saw about $850 million in flows in the last week. Ethereum products brought in $250 million. That combined flow of over $1.1 billion was a pretty meaningful improvement in sediment. And I think something that was great to see.
Ethereum has really been outpacing Bitcoin over the past month or so. Since July 1st, Ether is up about 15% versus Bitcoin being up about 5%. I think that's another key thing to kind of keep an eye on. We're seeing a little bit more interest recently in some of the tokenization or DeFi protocols, less so around the digital gold narrative that surrounds Bitcoin.