Source: Cointelegraph
Original: “Bitcoin (BTC) Ignores Moody's Downgrade of U.S. Debt, Rallies Back to $105K After Profit-Taking Sell-Off”
Bitcoin (BTC) price experienced a sharp 4% pullback during the Asian trading session on May 19, falling below the "important level" indicated by Glassnode. The data analysis platform shows that Bitcoin's rise stalled below $106,600, a key level where 31,000 BTC are held. This supply cluster formed on December 16, 2024, reflecting the holders' strong conviction, as investors neither sold nor closed positions despite price fluctuations.
The drop in BTC price occurred after intensified macroeconomic headwinds, including Moody's historic downgrade of U.S. credit ratings and rising U.S. Treasury yields, which sparked speculation about the short-term trajectory of risk assets like Bitcoin.
After the U.S. market closed on May 16, Moody's Investors Service downgraded the U.S. credit rating from Aaa to Aa1, marking the first downgrade in modern history. Moody's expressed concerns over the U.S.'s ever-expanding $36 trillion debt pile, with the federal deficit expected to reach 9% of GDP by 2035, up from 6.4% in 2024.
Interest payments on U.S. debt are projected to consume 30% of federal revenue by 2035, significantly higher than the current 18%. Following similar actions by Standard & Poor's in 2011 and Fitch in 2023, this downgrade underscores the unsustainable fiscal path of the U.S., shaking investor confidence and leading to market turmoil.
The downgrade was also accompanied by a surge in U.S. Treasury yields, further impacting the market. The 10-year Treasury yield opened at 5.53% after the downgrade on May 19, while the 30-year yield also showed a similar upward trend, currently at 4.98%, reflecting investor concerns over higher borrowing costs for the U.S. government.
Kobeissi Communications noted that historically, past downgrades have led to mixed reactions in yields—yields fell by 35% after the 2011 S&P downgrade, but rose by 23% after the 2023 Fitch downgrade. This surge in yields resembles the pattern seen in 2023, indicating concerns over inflation and fiscal pressures, which could lead to a pullback in Bitcoin prices as investors seek safer assets.
The price drop in Bitcoin on May 19 reflects its sensitivity to macroeconomic changes. In the short term, as investors turn to safer assets amid rising uncertainty and borrowing costs, Bitcoin may continue to face pressure.
However, Bitcoin researcher Axel Adler Jr. on platform X emphasized the shift in market sentiment, noting that traders betting on price declines are "significantly more cautious" in establishing short positions during this bull market cycle, indicating a long-term bullish outlook as shorts become risk-averse.
Historically, Bitcoin has served as a safe haven during economic turmoil (such as the COVID-19 crisis) and may benefit in the long run from the erosion of trust in fiat currency systems, especially as the U.S. fiscal outlook worsens.
The U.S. Dollar Index (DXY) shows a potential drop below 100, reflecting a weakening dollar, which has triggered a classic "risk-off" response. This shift has reignited interest in gold, with gold prices rising slightly by 0.4%, although broader market reactions remain subdued. Typically, a weaker dollar supports risk assets like Bitcoin as investors seek alternative stores of value. Axel stated:
"Overall, despite the prevailing 'risk-off' sentiment (which usually poses headwinds for high-volatility assets), Bitcoin may be in a relatively strong position in the current environment due to its 'digital gold' narrative and the support from a weakening dollar."
Related: Paul Atkins: The crypto market has been struggling in the SEC's predicament.
This article does not contain investment advice or recommendations. Any investment and trading activities involve risks, and readers should conduct their own research before making decisions.
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