Bitcoin came under selling pressure in the week ended April 23 amid rising bond yields and lower dollar liquidity.
The leading cryptocurrency by market capitalization fell 10 percent to $27,349, its biggest weekly percentage drop since early November, according to TradingView. The U.S. 10-year Treasury yield rose 6 basis points (bps) to 3.58%, its second straight week of gains, reducing the appeal of risky assets including cryptocurrencies.
BTC price 4-hour chart | Source: Tradingview
The U.S. dollar liquidity conditions index, which tracks the supply of dollars in the monetary system, fell to $6.13 trillion, its lowest level in more than a month, according to data source TradingView. In addition, traders have been pricing in the possibility that the US Federal Reserve will raise interest rates by 25 basis points in May to continue its tightening cycle.
As of 2021, BTC and cryptocurrency markets in general are closely watching local tops and bottoms in the USD Liquidity Index. Bitcoin surged to a then high of $28,000 in the first half of March as the Federal Reserve turned on the liquidity spigots to avert a banking crisis, pushing the U.S. dollar liquidity index from $5.82 trillion to $6.35 trillion.
Noelle Acheson, author of the bestselling Crypto Is Macro Now, wrote in the weekend edition of the newsletter:
“With no encouraging signs of monetary liquidity, BTC continued to fall for a week after Monday’s slump, dragging down other large cryptocurrencies. While an “insurance” asset would perform better when other asset classes were affected, BTC still suffered Serious implications for the overall macro picture. Much of this is driven by expectations of monetary liquidity.”
Dessislava Laneva, a macro analyst at Paris-based crypto data provider Kaiko, said bitcoin and financial markets could see price volatility in the short term due to the U.S. debt ceiling.
The US government hit its statutory debt limit (a self-imposed limit on borrowing) of $31.4 trillion in January, forcing the US Treasury to take extraordinary steps to help the government meet its obligations for at least five months. The measures also boosted dollar liquidity and risk assets.
Since then, debt ceiling negotiations have stalled. Last week, one-year credit-default swaps, or CDS, which measure the cost of insuring a government default over the next 12 months, rose to record highs last week, The Wall Street Journal reported.
source: Twitter
Current prices on the CDS market indicate a 2% probability of default. Andy Sparks, director of portfolio management research at New York-based MSCI, told The Wall Street Journal that for one aspect of the financial catastrophe, that number is uncomfortably high.
So the observer is Fear US Treasuries may run out of money in June.
Lanwa commented:
“The debt ceiling issue is a source of short-term volatility, adding to market uncertainty.”
Bitcoin is still considered a risk asset and could come under selling pressure if the stock crashes at some point. Risk assets took a hit during the debt-ceiling drama of 2011, when gridlock in Washington led to the loss of the country’s top sovereign credit rating of AAA.
“Once a deal is reached, the U.S. Treasury is expected to need to replenish reserves in the second half of the year, reducing liquidity and exacerbating the impact of quantitative tightening (rate hikes) … a scenario that could prompt” the Fed to cut rates, which would ultimately benefit risk assets, said Laneva.
According to Tom Dunleavy, a macro analyst at Messari, the possibility of a default could make Bitcoin a safe haven, as it did during the recent banking crisis in March.
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According to Coindesk
