Bitcoin (BTC) fell below $28,000 during US trading hours on Tuesday, but then stabilized as investors watched the progress of the debt ceiling deal, the passage of which remained likely but uncertain.
The largest cryptocurrency by market cap was recently trading at around $27,740, up 0.1% over the past 24 hours, although down slightly from its high earlier in the day, according to CoinDesk data.
“Normally, when governments issue debt that takes their debt to GDP at uncomfortable levels, that should be good news for cryptocurrencies, but too many companies may be dealing Crypto with tough financing options over the next year” Oanda Exchange, books In a note on Tuesday.
Meanwhile, traders also revised their expectations for a more dovish monetary shift by the US Federal Reserve. the CME FedWatch tool It now shows a 66% probability that the Fed will raise rates by 25 basis points for the fourth time in a row at its June meeting. Only 28% expected a rate hike just a week ago.
“So far, bitcoin has moved at a steady pace with liquidity,” Deslava Ianeva, a research analyst at crypto-data firm Caico, told CoinDesk. Ianeva noted that quantitative (QT) tightening, which typically occurs when a central bank looks to shrink its balance sheet, “was partially offset by Fed Treasury spending and the Bank’s term financing program, but that push has now been exhausted.”
Ianeva said the interest rate hike along with QT would “definitely dampen the prospects for a significant rally in the market”. “However, there have been various other narratives increasingly driving Bitcoin markets this year such as store of value, NFTs, as well as technical factors such as supply/demand… (Tether has said publicly they will buy) and liquidity.”
She believes that unlike last year, BTC can show resilience amid more monetary tightening.
Among other digital assets, ether (ETH), the second-largest cryptocurrency by market cap, rose nearly 0.6% to trade hands at around $1,905. Payments-focused cryptocurrency XRP jumped more than 6% on the day to trade at around 52 cents, while storage protocol token FIL rose 4% to trade at $4.83.
The CoinDesk Market Index (CMI), which measures the overall performance of the cryptocurrency market, was up 0.6% on the day.
Three days later, stocks for the weekend were mixed. The S&P 500 closed flat on Tuesday, while the Dow Jones Industrial Average (DJIA) fell 0.1%. The tech-heavy Nasdaq rose 0.3%.
In the bond markets, the 2-year and 10-year Treasury yields fell by 11 basis points to around 4.44% and 3.69%, respectively. Cryptocurrency prices generally act inversely to returns.
The House of Representatives is expected to vote on the debt ceiling agreement on Wednesday, with some hardline conservatives already indicating they will not vote for the hard package and some progressive Democrats yet to commit to it. “Based on the weekend reaction to the debt ceiling news, the post-vote agreement seems likely to reverse positively on the market in the short term,” Vetle Lunde, senior analyst at K33 Research, wrote in a weekly note published on Tuesday.