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Bitcoin extended its recovery and reached around $84,900, about 11% above last week's low near $76,400. This is the first time the asset has traded at these levels since January 31. The move also lifted the wider market. XRP gained around 7% over 24 hours and Solana a similar amount, while Zcash led the top ten with a weekly gain above 33%. Ether touched $2,700 earlier in the day.
Several factors came together behind the rally. The first is positioning in derivatives markets. The advance forced the closure of $262.30 million in short positions within a single hour, and liquidations reached $599.15 million over 24 hours. The second is technical. Bitcoin recorded its first weekly close above its 50-week moving average in 45 weeks, ending the week at $81,159, around 3% above that average. The third is a slightly better macro tone: Brent crude declined for a fourth straight session to around $101, easing inflation concerns, and Asian equities moved higher after positive signals from U.S.-China talks ahead of this week's Trump-Xi summit. Regulatory momentum also played a role, with the SEC's opening for on-chain trading of tokenized U.S. equities and the CFTC's rule proposal both supporting sentiment. Since a meaningful part of the move came from forced short covering, its durability will depend on whether spot and ETF demand follow through this week
ETF flows point to returning demand, though conviction remains uneven. U.S. spot Bitcoin ETFs took in $433 million on Friday, their strongest session since September 3. That brought the week to a small net inflow of $6.2 million, after outflows on Tuesday and Wednesday and $462.7 million in outflows the previous week. Year to date, Bitcoin ETFs show around $1.45 billion in net outflows, while combined net assets stand at $102.53 billion. Ether ETFs recorded a $140 million weekly outflow, ending a four-week streak that had brought in $1.94 billion. Friday's inflows into Solana and Zcash products show that institutional interest extends beyond Bitcoin.
On the regulatory side, the Senate did not advance the CLARITY Act on September 15. The bill would have defined asset categories and given the CFTC supervisory authority over digital asset spot markets. The main point of disagreement was not its core content but its ethics provisions, which cover politicians' involvement in digital asset ventures. The delay matters most for Ethereum and the broader altcoin market, where much of the stablecoin payment infrastructure sits and where regulatory treatment is less settled than for Bitcoin.
Regulatory work is continuing through other channels. Two days after the vote, the SEC introduced a five-year innovation exemption for tokenized securities venues. This adds to its proposed Regulation Crypto Assets, a rule that would recognise blockchain records as proof of ownership, and a forthcoming custody framework for investment advisers. The CFTC sent its own proposal on digital asset transactions and markets to the White House for review on Friday. Agency rules are less durable than legislation and can be challenged in court. Still, they provide a working framework in the meantime, and a revised version of the bill could return as early as next year given its relevance for stablecoins and Treasury demand.
Monetary policy remains the main constraint. The Federal Reserve raised rates for the first time in three years in a unanimous vote. The more notable signal was the removal of expected easing through 2027 from its projections. Markets now price a probability above 50% of another hike in October. With the 10-year Treasury yield close to 5% and the dollar stable at higher levels, the liquidity conditions that have historically supported Bitcoin are likely to take longer to return, even after today's advance.
Japan is also tightening policy. The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, in a 7-2 vote. The yen weakened after the decision, with USD/JPY moving back above 157, as Governor Ueda did not commit to further increases. Each step in Japan's normalisation reduces the appeal of the yen carry trade, which has been a source of global leverage. Previous periods of Japanese tightening have coincided with lower positioning across risk assets, including digital assets.
Geopolitical uncertainty remains high. President Trump said Iran's economy and leadership would face serious consequences without a deal, while Tehran said it would respond to any new strike. Houthi missile and drone attacks on Riyadh led to the Saudi capital's first air raid alert since fighting escalated in July, although Saudi air defences intercepted the projectiles and no casualties were reported. Brent crude has eased on expectations of recovering Saudi shipments. In our view, oil is likely to remain elevated while access to the Strait of Hormuz is restricted, which keeps inflation, and therefore the Fed, in focus. Diplomatic meetings at the UN General Assembly and the Trump-Xi summit this week offer some scope for easing tensions.
The rally improves the technical picture, but the broader backdrop still favours a measured approach. Part of the move was driven by forced short covering rather than new spot buying, and Bitcoin is now trading at levels last seen in January, where holders from that period may take the opportunity to sell. Tighter policy from both the Fed and the Bank of Japan, together with inflation risk linked to oil, argues for some consolidation after such a quick advance. A sustained move higher would likely require continued ETF inflows, a better inflation outlook or a change in rate expectations. Bitcoin is relatively well positioned given its clearer regulatory status, while Ethereum and altcoins remain more sensitive to the legislative delay and tighter liquidity, so selectivity and position sizing deserve more attention than usual.
The longer-term picture remains constructive. Regulators are building a framework even without legislation, tokenization is gaining a legal basis in the U.S., and institutional capital continues to enter during periods of weakness. Investors with a longer horizon may find that price swings ahead of the Fed's late-October meeting offer better entry points than chasing the current move. Those with a shorter horizon should monitor ETF flows, oil prices, Treasury yields and the yen, which are currently the main drivers of digital assets performance.
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