Institutional demand has strengthened alongside prices. Over the four U.S. trading sessions from August 17 through August 20, spot Bitcoin ETFs attracted approximately $1.61 billion in net inflows, while spot Ether ETFs added about $508.6 million. These figures represent inflows rather than the decline in ETF balances indicated in the original data.

Treasury Buybacks Change the Market Narrative

One of the rally’s main catalysts was the easing of stress in the U.S. government-debt market. The yield on the 30-year Treasury bond had climbed to 5.337%, its highest level since 2007, before the government announced additional support for long-dated securities.

On August 19, the U.S. Treasury announced that it would at least double the maximum size of long-end liquidity-support buybacks, increasing it from $2 billion to at least $4 billion per operation for securities in the 10-to-20-year and 20-to-30-year maturity sectors. The increase will take effect on September 9 and remain in place through November 4.

The measure is intended to improve liquidity in the Treasury market rather than inject money directly into cryptocurrencies. Nevertheless, the announcement initially pushed long-term yields lower, weakened the U.S. dollar and increased investors’ appetite for alternative and higher-risk assets.

Short Squeeze Pushes Liquidations Above $4 Billion

The advance accelerated as leveraged bearish positions were forced to close. According to CoinGlass, approximately $3 billion in crypto short positions were liquidated on Thursday, the largest one-day total in records dating back to 2021.

The squeeze continued on Friday, when roughly another $1.2 billion in short positions was liquidated over a rolling 24-hour period. This brought the two-day total above $4 billion. The largest individual liquidation during the latest session was a $25.13 million Bitcoin position on Hyperliquid.

Forced buying from short sellers amplified the rally and helped prices rise faster than spot demand alone would normally support. At the same time, this makes part of the move mechanical and leaves the market vulnerable to consolidation once the liquidation wave subsides.

Trump Revives Hopes for the CLARITY Act

Regulatory developments provided another source of support. During an August 19 White House meeting attended by executives from Coinbase, Gemini, Ripple, Chainlink Labs and other major companies, President Donald Trump urged Congress to approve a “fair version” of the Digital Asset Market Clarity Act.

Trump argued that the legislation would help the United States remain ahead of China and open the door to a new wave of financial innovation. The bill is intended to define the respective roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission and establish clearer rules for digital assets.

Its prospects remain uncertain, however. Lawmakers have yet to resolve disagreements over ethics and conflict-of-interest safeguards, with critics arguing that the current provisions would not fully prevent senior government officials from benefiting from crypto-related businesses.

The next important Senate step is expected on September 15, when lawmakers may hold a cloture vote on the motion to proceed with the bill. This would be a procedural vote requiring 60 votes, not final approval of the CLARITY Act.

Fed Rate-Hike Risk Has Not Disappeared

The market has also benefited from a decline in expectations for an immediate tightening of Federal Reserve policy. U.S. nonfarm payroll employment fell by 23,000 in July, while retail and food-services sales declined by 0.6% from the previous month.

Following the weaker data, CME FedWatch estimates showed the probability of a 25-basis-point rate increase in September falling to approximately 35%, compared with 48.4% a week earlier. However, futures markets were still pricing in roughly a 66% probability of at least one rate increase by December.

The minutes of the Federal Reserve’s latest meeting also maintained a hawkish tone. Many participants said further policy tightening would probably be necessary if inflation failed to decline, while three voting members had already supported a quarter-point increase at the July meeting. Monetary-policy risk therefore remains an important potential obstacle for digital assets.

Conclusion

Cryptocurrency sentiment has shifted rapidly from pessimism to optimism, with the Fear and Greed Index rising to 72 and entering the “Greed” zone. Strong ETF inflows, improved Treasury-market conditions, regulatory hopes and forced short covering could allow major assets to extend their gains or move into consolidation.

However, the scale of the liquidation-driven rally suggests that prices may now be stretched in the short term. A renewed rise in Treasury yields, a stronger dollar, weaker ETF demand or another delay to the CLARITY Act could trigger a correction. The near-term market outlook has clearly improved, but the rally still depends on spot demand remaining strong after the short squeeze fades.