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Bitcoin (BTC) dipped below the $28,000 mark during Tuesday's U.S. trading session but regained stability as investors kept a close eye on the progress of a debt ceiling agreement. While the deal's passage appeared probable, it was not yet assured.
According to data from CoinCryptoUs, the leading cryptocurrency, with the highest market capitalization, was recently valued at approximately $27,740. It recorded a modest increase of 0.1% within the past 24 hours, although it had slightly declined from its earlier peak during the day.
BTC reached a milestone on Sunday, surging past the $28,000 mark for the first time in nearly three weeks. This significant increase came in the wake of an agreement between U.S. President Joe Biden and House Speaker Kevin McCarthy to temporarily suspend the debt ceiling until January 1, 2025. This agreement aims to prevent the nation from defaulting on its obligations, which were projected to occur as early as June. Additionally, as part of the deal, the U.S. Treasury is expected to issue approximately $1 trillion in debt to replenish its Treasury General Account.
“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,” Edward Moya, senior market analyst at foreign exchange Oanda, wrote in a Tuesday note.
In the meantime, traders have adjusted their forecasts, anticipating a more accommodative stance from the U.S. Federal Reserve. According to the CME FedWatch Tool, there is now a 66% likelihood that the Fed will implement a 25 basis point interest rate increase at its June meeting, marking the fourth consecutive rate hike. Just a week ago, only 28% of traders predicted such a rate hike.
“So far, bitcoin has moved in lockstep with liquidity,” Dessislava Ianeva, research analyst at crypto data firm Kaiko, told CoinDesk. Ianeva noted that quantitative tightening (QT), which usually happens when the central bank looks to reduce its balance sheet, "was partially offset by the Treasury spending its cash at the Fed and Bank Term Funding Program, but that push is now exhausted.”
Further rate hikes combined with QT “would definitely dampen prospects for a significant market-wide rally,” Ianeva said. “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 holds the belief that, in contrast to last year, BTC might demonstrate resilience in the face of additional monetary tightening.
Amongst various digital assets, ether (ETH), the second-largest cryptocurrency by market capitalization, experienced a modest increase of approximately 0.6%, reaching a trading value of around $1,905. XRP, a cryptocurrency with a focus on payments, saw a notable surge of over 6% during the day, trading at approximately 52 cents. Additionally, Filecoin's FIL token, a storage protocol, observed a 4% rise, reaching a trading value of $4.83.
The CoinDesk Market Index (CMI), which gauges the overall performance of the cryptocurrency market, experienced a 0.6% increase throughout the day.
Following a three-day holiday weekend, there was a mixed performance in equities. On Tuesday, the S&P 500 ended the day unchanged, while the Dow Jones Industrial Average (DJIA) experienced a slight decline of 0.1%. Conversely, the tech-focused Nasdaq saw a 0.3% increase.
In the bond markets, the yields on both 2-year and 10-year Treasuries experienced an 11 basis point decrease, with rates settling at approximately 4.44% and 3.69%, respectively. Typically, cryptocurrency prices tend to move in the opposite direction of bond yields.
The House is anticipated to hold a vote on the debt ceiling agreement on Wednesday, with certain staunch conservatives already expressing their reluctance to support the hard-won package, and a few progressive Democrats remaining undecided. In a weekly note released on Tuesday, Vetle Lunde, a senior analyst at K33 Research, stated, “Based on the weekend reaction to the debt ceiling news, an agreement following the vote seems likely to reflect positively on the market in the short term,”
