Clarity Act Failure Leads to Liquidations of Crypto Longs Worth $570 Million

Long futures bets in crypto markets have received a major setback during the last 24 hours following the rejection of the Clarity Act in the Senate. Liquidations worth around $571 million (roughly Rs. 5,479 crore) have been witnessed on exchanges over the period, marking the largest number of long liquidations since August 22, as per CoinGlass. The shorts, or bearish positions, made up only around $100 million (roughly Rs. 960 crore) worth of the loss. The Bitcoin and Ether long positions suffered the most, with roughly $190 million (roughly Rs. 1,824 crore) in each getting liquidated.

Market Expectations Had Supported a Broader Crypto Rally

As per the data from Coinglass, it was believed that Ether and DeFi tokens were the currencies that would perform better than Bitcoin in case of a yes vote by the Senate. Long positions in XRP fell by around $30 million (roughly Rs. 288 crore), whereas those of Solana fell by around $22 million (roughly Rs. 211 crore). Based on the above data, it is clear that markets were set for further gains primarily due to expectations that the Clarity Act would be passed. This hope was further reinforced midweek when it came to light that President Donald Trump was prepared to make concessions regarding the ethics provisions of the bill. In response to this, the leading cryptocurrency, Bitcoin, rallied to trade at almost $80,000 (roughly Rs. 76.7 lakh) from roughly $77,000 (roughly Rs. 73.9 lakh).

The rally started to unravel about 24 hours ago as rumors were spreading that Democrats were continuing to hold their ground. They were right. The legislation did not pass the 60-vote hurdle in the Senate. The fight is not yet over. The CFTC and SEC have yet to embark on their own rulemaking processes. Simply put, the initiative has fully swung toward the executive branch and independent agencies after the 49-50 procedural vote against the CLARITY Act in the US Senate.

Liquidations happen if the market goes against the position of the trader in the futures contract and losses through mark-to-market increase. If the initial margin provided by the trader for the trade is not sufficient to cover the trade, then the trader needs to provide more money. Liquidations could fuel volatility, but up to now, their impact appears to be limited. At the time of writing, the price of Bitcoin stood at about $75,700 (roughly Rs. 72.6 lakh), still within its previous trading range. 

The official roll call record for the US Senate reveals that the cloture motion for the bill, H.R. 3633, fell 49-50 on September 15. A three-fifths majority (or 60 votes) was needed to shut down debate on the motion to proceed under Senate rules, which was short by 11 votes. The Republican Senators Susan Collins, Josh Hawley, Jerry Moran, and Thom Tillis voted against cloture. Democratic Senator Chris Coons did not vote.