Bitcoin Surges 23% as Dollar Weakness and AI Capital Inflows Lead

Bitcoin prices generally move in four-year cycles, closely tied to halving events. From July 2020 to May 2022, growth in the DeFi market drove Bitcoin's price higher. However, until October 2022, prices fell amid systemic failures such as exchange bankruptcies.

This shift suggests that Bitcoin's price may now move under complex factors beyond its traditional cyclical pattern, adding to market uncertainty.

The market read this as a signal of dollar weakness, forming a new dollar-weakness narrative. Alongside these expectations, the liquidation of $2 billion in short positions had a significant impact on Bitcoin's rise.

Excessive leverage is a major cause of Bitcoin market collapses. If leverage continues to accumulate in the market, it can eventually lead to price declines and large losses for investors.

The funding rate is the cost that investors betting on price increases pay to those betting on declines. When this rate exceeds 10%, it can be interpreted as a signal that the market is overheated.

As Bitcoin rose 23% recently, the futures funding rate has begun to exceed 10% for the first time in a while. If the funding rate remains at 10%, the market is considered to be in an overheated phase, which could raise the risks of spot Bitcoin investment in the short term. Investors should therefore exercise particular caution.

Holding Bitcoin in the futures market with a 10% funding rate means paying the equivalent of a year's interest. If Bitcoin's price does not rise by at least 10%, investors face a high risk of losing that amount entirely.

In the past, monetary expansion showed a strong correlation with Bitcoin's price rise. Although money supply growth is expected from US Treasury bond buybacks and short-term bond issuance, the historical correlation between money supply and Bitcoin's price has broken down since 2024, with a decoupling now appearing. This suggests the factors moving the Bitcoin market are different from before.

According to a BlackRock research report, from January 2024 to September 2025 the Bitcoin market drew $60 billion in inflows, while AI-related funds took in $10 billion over the same period. However, as public interest in AI has surged, existing Bitcoin investors are selling Bitcoin and moving money into AI-related ETFs and stocks. This capital shift is acting as a barrier to further gains in Bitcoin.

The size of AI-related ETFs now exceeds $100 billion. Experts forecast that even if just 2% of the capital rebalanced out of AI-related portfolios flows into Bitcoin, Bitcoin's price could keep rising. This highlights the importance of asset allocation strategies that run AI and Bitcoin together.

Notably, IBIT tends to trade more through over-the-counter (OTC) channels than through direct market purchases. Such OTC trades have a relatively limited direct impact on spot prices.

In particular, the supply of stablecoins is an important indicator of market liquidity. Rising demand for borrowing against stablecoin collateral is a core driver of bull markets, but current readings are sluggish, below 50% of their peak.

The near-halving of stablecoin issuance is a noteworthy development. Stablecoin issuers have largely served as buyers of US short-term bonds, so a drop in issuance suggests they have less capacity to buy short-term bonds. This has raised concerns that the US short-term bond market could also be affected.

The chance of the CLARITY Act passing within the year is assessed as very low. Polymarket's forecast is only around 40%. A committee vote scheduled for September 15 requires 60 votes, but passage looks difficult given the short legislative window of three weeks before the midterm elections and partisan conflicts over ethics provisions.

The CLARITY Act is seen as having almost no effect on the Bitcoin market. Bitcoin's recent rise is attributed more to the dollar-weakness story than to expectations of the bill passing. The industry is now focusing more on establishing clear guidelines than on whether the bill passes.

Until the Trump administration, clear guidelines from the SEC and CFTC were in place, and CFTC guidance is expected to create routes for altcoin fundraising and exemptions from securities law. This has the potential to bring futures trading platforms into the US and expand the market.

Bitcoin and Ethereum are already classified as financial assets in the United States. Therefore, whether the CLARITY Act passes cannot directly cause these assets to fall. They already enjoy recognition as assets within the institutional framework.

Several indicators are used to judge market overheating and peaks. A funding rate above 10% can be read as short-term overheating, while a DeFi spread above 1% is considered a strong bull-market signal. If the DeFi spread exceeds 2%, a peak is judged very likely, but the current DeFi spread stands at around 0.5%.