Crypto Bill Delays Pressuring Flows: A Flow Analyst's View

The path for U.S. crypto market structure legislation is now in doubt, with TD Cowen projecting a delay to 2027 or later. This uncertainty is directly pressuring institutional flows. Digital asset investment products saw a second consecutive week of outflows last week, totaling $1.7 billion. The U.S. accounted for the vast majority of these redemptions, with $1.65 billion in outflows, leaving net year-to-date flows at a global outflow of about $1 billion.

The price impact has been sharp. Bitcoin fell to a nine-month low Saturday (Jan. 31), dipping below $80,000. The selloff erased around $111 billion from the crypto market's total value in the space of 24 hours. This move follows a broader drop, with Ethereum trading near $2,370, down more than 18% over the past week.

The key friction point is conflict-of-interest language that could bar senior officials, including President Trump, from owning crypto ventures. TD Cowen notes such a provision would be a "nonstarter" for Trump unless its effective date is pushed years into the future, creating a political stalemate that extends the timeline for regulatory clarity.

The Political Flow: Conflict and Cash

The core flow friction is a direct political mismatch. Democratic demands for conflict-of-interest rules that would bar President Trump from profiting from crypto ventures are a "nonstarter" for him. This creates a fundamental deadlock, as the legislation requires 60 Senate votes to overcome a filibuster, meaning Republicans need Democratic support. The leverage is clear: Democrats see a path to delay passage until after the 2026 midterms, hoping to regain control of the House and shape final rules.

Last week, a last-ditch bipartisan meeting was scheduled, organized by Senate Banking Chair Tim Scott, as a final bridge effort before the political clock runs out. Yet the underlying dynamic is one of institutional control and financial influence. Key regulatory agencies are now all-GOP affairs, creating a pro-crypto tilt in enforcement. This environment is being reinforced by a massive cash infusion, as crypto operators gave President Trump another $21.5 million last month through his PAC.

This political flow is a two-way street. The cash gives operators direct access and influence, while the all-GOP regulatory landscape reduces near-term compliance risk. For institutional investors, this creates a volatile setup: the promise of clearer rules is pushed years into the future, while the immediate regulatory environment is tilted in favor of industry interests. The result is a stalemate that pressures long-term investment flows, as seen in the recent $1.7 billion weekly outflow from digital asset products.

Catalysts and Flow Watchpoints

The primary near-term catalyst is the 2026 midterm election. TD Cowen notes Democrats may have little incentive to move quickly, as they could regain control of the House and shape final rules. This creates a political timeline where delay is a strategic option for both parties. The outcome will determine whether the legislative landscape shifts, potentially breaking the current deadlock.

Monitor two key flow metrics for signs of institutional patience eroding. First, watch Bitcoin ETF inflows and outflows. Sustained net outflows would signal that regulated capital is exiting the space, pressuring prices further. Second, track derivatives Open Interest. A decline in Open Interest suggests traders are unwinding leveraged positions, a classic sign of risk-off sentiment and reduced market participation.

The legislative watchpoint is any movement on the Senate Ag's updated text. The bill, released in January, leaves critical definitions like DeFi treatment open. While it incorporates some House language, unresolved issues on decentralized governance and noncontrolling developers remain. Any progress on these technical details could reignite negotiations, while a stalemate would confirm the bill's path to 2027 or later.