Cryptos fall again while awaiting news on US debt
By Álvaro Estevez / Alejandra Zamora
Date: Wednesday 31 May 2023
(Sharecast News) - Cryptocurrencies are falling again on Wednesday. Bitcoin (BTC) drops 2.3% in the last 24 hours to $27,160, while Ethereum (ETH) retreats 1.9% and falls below $1,870.
"Bitcoin is steady as investors await to see how the cryptoverse will react to the tightening of conditions once the debt deal gets passed and a trillion dollars worth of Treasury bills gets issued by the Treasury," explained Edward Moya, senior market analyst at OANDA.
According to the expert, "typically, when governments issue debt that takes their debt to GDP at uncomfortable levels, that should be good news for crypto, but too many crypto companies might deal with difficult financing options over the next year."
The reigning cryptocurrency recently surpassed $28,000 for the first time in three weeks after Democrats and Republicans reached a deal to raise the debt ceiling... but now it´s falling once more. This is due, experts point out, to two reasons: the Federal Reserve (Fed) and market liquidity.
On the one hand, the consensus now expects the U.S. central bank to reverse policy and raise interest rates in June instead of the pause that was planned. According to CME's FedWatch tool, there is a 63% probability that the Fed will hike by 25 basis points at the June 14 policy meeting.
On the other hand, the market continues to suffer from a lack of liquidity. Dessislava Ianeva, research analyst at cryptocurrency firm Kaiko, noted that Bitcoin "has moved in lockstep" with market liquidity and that the quantitative tightening (QT) undertaken by the Fed "was partially offset by the Treasury spending its cash at the Fed and Bank Term Funding Program, but that push is now exhausted."
According to the expert, further rate hikes combined with QT "would definitely dampen prospects for a significant market-wide rally." "That said, other different narratives have increasingly been driving BTC markets this year such as store-of-value, NFTs, as well as technical factors such as supply/demand... (Tether has openly said they'll buy) and liquidity," she stated. Ianeva also believes that, unlike last year, Bitcoin could show resilience amid further monetary tightening.
In other market news, Ripple (XRP) continues to rise on the expectation of a court victory before the SEC. The rest of the major altcoins fall, with Polygon (MATIC), Litecoin (LTC) and Polkadot (DOT) dropping 2%.
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