Ethereum (ETH) and the wider crypto market felt the impact of the Clarity Act failing to clear the Senate. Analysts had touted the bill as a major tailwind for the second-largest cryptocurrency.

Expectations that its advance would trigger a rally have now been reset. The setback has left its mark on ETH.

How Much of This Was the Vote

Over the past week, Ethereum price dropped around 3%. The altcoin dipped to $2,388 after the CLARITY Act failed, then rebounded to $2,400 shortly after. In comparison, other major altcoins like XRP and Hyperliquid have dropped over 8%.

US-listed spot Ethereum funds also saw heavy selling. They recorded their largest outflow since January on Tuesday as the bill stalled.

Not all of the selling started in Washington. ETH was already sliding before the Senate voted, then extended the decline once the result landed.

Exchange data points the same way. CryptoQuant recorded roughly 709,400 ETH moving into Binance on September 11, four days before the vote. That was the highest daily total since June.

Large exchange inflows can signal that more coins are becoming available for potential selling. However, an exchange deposit does not mean those coins were sold.

What Happens to Ethereum Price Now?

The failed vote removes a potential catalyst for ETH in the short term. However, its longer-term supply dynamics remain intact.

CryptoQuant put exchange reserves at 14.6 million ETH, the lowest level since 2016. Reserves have fallen steadily since 2022, and this week’s inflows barely register against that trend.

Staking also continues to absorb supply. Analyst Leon Waidmann put the total staked at 43 million ETH, a record, or close to 35% of supply.

Coins in a validator cannot be sold until the queue is cleared. That leaves a smaller pool of ETH available to trade than in any previous cycle.

Valuation has improved alongside it. Analyst MorenoDV noted that ETH’s MVRV ratio has moved above 1 and has remained there for several sessions. ETH also trades above its realized price near $2,300. 

“A sustained MVRV > 1 together with ETH holding above its ~$2.3K Realized Price would strengthen the case that June–July marked the cycle low and that the market is transitioning from repair into expansion,” the analyst said.

The signals are not clean, though. CryptoQuant’s Coinbase Premium Index sits near -0.08, indicating softer US spot demand relative to offshore.

Taken together, ETH’s supply backdrop remains supportive, but demand has yet to provide a clear counterweight to the recent selling pressure.

Washington Steps Aside, the Fed Steps Up

Not everyone sees the bill as decisive. Grayscale’s head of research argued that crypto can advance without the Clarity Act.

That view puts the weight back on macro. With Washington out of the picture, at least for now, rates could be the variable driving ETH.

The Federal Reserve has already increased interest rates on Wednesday, with Kevin Warsh warning further tightening could be ahead.

This hike is the first of this cycle. What traders want is a signal about what follows. For now, it looks like the Crypto market has already priced in the CLARITY Act failing and the Fed rate hike.

“If the Fed sounded like this rate hike was a one-time thing, I expect a good pump,” analyst Ted Pillows stated. “But if Warsh insists more on the Fed’s 2% inflation target, the market will see this as a hint of more future hikes. In that scenario, there’ll be a dump across stocks, crypto, and even precious metals, while bond yields will surge.”

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Source: BeInCrypto