Bitcoin Lagged While Tech Stocks Soared. Why Cryptos Have More to Worry About.

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Bitcoin
and other cryptocurrencies rose Friday, bucking a recent downtrend, though digital assets remained under pressure on multiple fronts, including the looming U.S. debt-ceiling deadline as well as rising expectations of another interest-rate hike next month.

The price of Bitcoin has risen 1% over the past 24 hours to $26,450, remaining on the lower end of a tight trading range that has dominated for weeks. While Bitcoin has gained almost two-thirds so far this year, the largest digital asset has been languishing below the psychologically important $30,000 level, which was breached for the first time since June 2022 in April but proved unsustainable.

“This week, Bitcoin briefly dipped below its two-week range of $26,500 to $27,000, now challenging the critical $26,275,” said Rachel Lin, the CEO of trading platform SynFutures. “A close below this weekly range could negatively impact Bitcoin and the broader crypto market, but a bounce from this level could signify a possible recovery.”

Bitcoin has been taking cues from macroeconomic forces that also impact the stock market—but has traded more like the

Dow Jones Industrial Average
and

S&P 500
than the

Nasdaq Composite
in recent days. Since both cryptos and the tech stocks that fill the Nasdaq represent assets more sensitive to changes in risk sentiment, Bitcoin tends to be more closely linked to that stock index.

While Bitcoin has been in a holding pattern this week, the Nasdaq has torn higher over the past couple of days, led by the likes of

Nvidia

(ticker: NVDA). The reason why has nothing to do with bond yields or expectations of more accommodative Federal Reserve monetary policy—and that’s why Bitcoin hasn’t followed. Much of the buoyancy in tech has come amid investor frenzy over opportunities in artificial intelligence, which is a catalyst that has little to do with Bitcoin.

It leaves digital assets vulnerable to more macro forces, with cryptos likely to continue moving on the back of news surrounding the debt ceiling as a U.S. default risks draining liquidity from riskier parts of the market.

Also weighing on sentiment for Bitcoin have been bets that the Fed will deliver yet another interest-rate hike in June, after markets previously had all-but priced out the prospect. The Fed’s campaign of inflation-fighting rate hikes has been a key headwind for digital assets over the past year, with Bitcoin’s 2023 rally helped by hopes the worst was over. 

“Patiently waiting on the other side of the U.S. debt ceiling debacle is a world where the outlook for inflation and interest rates is what drives the markets, and that means more choppy price action is in store for Bitcoin and cryptocurrencies,” said Antoni Trenchev, co-founder and managing partner of crypto lender Nexo. 

Markets are pricing in a 41% chance of a quarter-point rate hike next month, up from below 20% a week ago, according to the CME FedWatch Tool.

“Bitcoin faces headaches no matter where it looks, and a (hopeful) resolution to the U.S. debt ceiling drama merely returns the discussion to Fed policy and the possibility that not only might we see another rate hike in coming months, but the likelihood of cuts by the end of the year is diminishing,” Trenchev said.

Beyond Bitcoin,

Ether
—the second-largest crypto—rose 1.5% to above $1,800. Smaller cryptos or altcoins were more mixed, with

Cardano
flat and

Polygon
up 2%. Memecoins were in the green, with both

Dogecoin
and

Shiba Inu
gaining 1%.

Write to Jack Denton at jack.denton@barrons.com