Bitcoin weighed down by debt ceiling uncertainty

Bit­coin fell 1.40% from May 19 to May 26 to trade at US$26,451 at 7:00 p.m. Fri­day in Hong Kong. The world’s largest cryp­tocur­ren­cy by mar­ket cap­i­tal­iza­tion has been trad­ing under US$30,000 since April 19. Ether rose 0.34% over the week to US$1,813 recap­tur­ing US$1,800 on Thursday.

The lack of progress in U.S. debt ceil­ing nego­ti­a­tions con­tin­ued to erode risk appetite as the June 1 dead­line neared. On Wednes­day, Fitch Rat­ings placed the U.S.’ AAA rat­ing on a neg­a­tive rat­ing watch, say­ing that debt ceil­ing nego­ti­a­tions raised the risks of the gov­ern­ment miss­ing pay­ments on some of its obligations.

“Bit­coin and Ether have shrugged off the U.S. debt ceil­ing nego­ti­a­tions and the poten­tial rip­ple effects for cryp­to. Pres­i­dent Biden has already declared the coun­try will not default on its debt,” Lucas Kiely, the chief invest­ment offi­cer of dig­i­tal asset plat­form Yield App, said. “With liq­uid­i­ty tight, the cryp­to mar­ket doesn’t seem to be too con­cerned over these macro events. It will take some­thing much more sub­stan­tial to move these markets.”

John­ny Louey, a cryp­to research ana­lyst at trad­ing plat­form Liq­uid­i­tyTech Pro­to­col, dis­agreed, say­ing that the debt ceil­ing nego­ti­a­tions are the main fac­tors weigh­ing down Bit­coin price.

“Although the debt ceil­ing has been raised and revised 78 times since 1960, investors are aware of the default risk if nego­ti­a­tions fail. This is the first time Bit­coin encoun­tered such an eco­nom­ic inci­dent and it’s rea­son­able to assume a risk-off approach would be appro­pri­ate,” said Louey.

The glob­al cryp­to mar­ket cap­i­tal­iza­tion stood at US$1.11 tril­lion on Fri­day at 7:00 p.m. in Hong Kong, down 0.89% from US$1.12 tril­lion a week ago, accord­ing to Coin­Mar­ket­Cap data. With a mar­ket cap of US$512 bil­lion, Bit­coin rep­re­sent­ed 46.1% of the mar­ket, while Ether, val­ued at US$218 bil­lion, account­ed for 19.6%.

“The entire mar­ket cap­i­tal­iza­tion of cryp­tocur­ren­cies has essen­tial­ly remained unchanged for a year,” said Kiely. “Tether’s plan to expand its Bit­coin hold­ings may tem­porar­i­ly boost prices but is over­all not like­ly to have a large impact. Bitcoin’s 2024 halv­ing could lead to a price boost, how­ev­er, we’ve yet to start see­ing the effects thereof.”

On May 17, Teth­er, the com­pa­ny behind the world’s largest sta­ble­coin USDT, revealed its plans to “reg­u­lar­ly allo­cate” as much as 15% of its net oper­a­tional prof­its to buy Bit­coin, aim­ing to boost its reserves port­fo­lio. Teth­er held approx­i­mate­ly US$1.5 bil­lion in Bit­coin reserves, at the time of the announcement.

Dormant Bitcoin hits all-time high

The amount of Bit­coin that has been inac­tive for at least a year rose to an all-time high of 68.46% on Wednes­day, accord­ing to data aggre­ga­tor MacroMi­cro.

“It could mean short-term sell­ing pres­sure decreas­es if the Bit­coin hold­ings in short-term hold­ings shift to longer-term hold­ers. How­ev­er, we will not be able to tell whether the address­es belong to insti­tu­tion­al investors or not,” Tom Wan, a research ana­lyst at 21.co, the par­ent com­pa­ny of 21Shares, an issuer of cryp­to exchange-trad­ed prod­ucts, said.

Accord­ing to Yield App’s Kiely, this sug­gests that increas­ing­ly more investors world­wide intend to hold their Bit­coin for the long term. 

“This trend is like­ly to con­tin­ue and even quick­en — even poten­tial­ly to the point of hyper­bit­coiniza­tion — giv­en the uncer­tain­ty relat­ed to an evolv­ing reg­u­la­to­ry land­scape and grow­ing recog­ni­tion of Bit­coin as a store of val­ue,” said Kiely. 

“Hyper­bit­coiniza­tion” is a con­cept spec­u­lat­ing on Bitcoin’s even­tu­al rise to become the world’s ubiq­ui­tous form of money. 

Notable movers: RNDR & KAVA

The Ren­der Network’s native cryp­tocur­ren­cy was this week’s biggest gain­er among the top 100 coins by mar­ket cap­i­tal­iza­tion list­ed on Coin­Mar­ket­Cap, ral­ly­ing 16.55% to US$2.83. The token start­ed pick­ing up momen­tum last Sat­ur­day, after the announce­ment of the new Ren­der Foun­da­tion web­site. This is Render’s sec­ond con­sec­u­tive week as the biggest gain­er in the top 100 cryptos.

The Ren­der Net­work lever­ages idle graph­ics pro­cess­ing units for dig­i­tal ren­der­ing pur­pos­es, cater­ing to areas such as 3D mod­el­ing, gam­ing imagery, and vir­tu­al reality.

Kava, the gov­er­nance token of a layer‑1 blockchain of the same name, was this week’s sec­ond-biggest gain­er, ris­ing 10.70% to US$1.09. The coin start­ed pick­ing up momen­tum on Mon­day, fol­low­ing the launch of the Kava main­net last week.

Next Week: Could a debt ceiling deal break Bitcoin’s crab walk?

U.S. Pres­i­dent Joe Biden and House Speak­er Kevin McCarthy are report­ed­ly clos­ing in on a deal that would raise the government’s debt ceil­ing for two years while cap­ping spend­ing on most items. Yet, the June 1 dead­line is fast approach­ing, caus­ing investor con­cerns about a poten­tial default.

Accord­ing to WuuTrade’s Ken­jaev, the uncer­tain­ty around the debt ceil­ing nego­ti­a­tions will keep weigh­ing down the cryp­to mar­ket until a deal is reached. 

“The side­ways [move­ment] of Bit­coin is very much relat­ed to the cur­rent mar­ket risks and the fear. Investors’ activ­i­ty dur­ing any eco­nom­ic risk talks is rather cau­tious. Hence the side­ways in US$26,000 – US$30,000,” wrote Ken­jaev, adding that pos­i­tive news sur­round­ing the U.S. econ­o­my will break the crab walk. 

Investors are await­ing next week’s release of the U.S. jobs report for May, which includes the cru­cial non­farm pay­rolls data. This infor­ma­tion often serves as a barom­e­ter for pre­dict­ing the Fed­er­al Reserve’s next steps regard­ing inter­est rate adjust­ments. ING Eco­nom­ics has pro­ject­ed an increase of 195,000 in non­farm pay­rolls for May. Addi­tion­al­ly, they antic­i­pate a slight uptick in the unem­ploy­ment rate to 3.5% for May, com­pared to 3.4% in the pre­ced­ing month.

In the cryp­to space, Opti­mism, an Ethereum layer‑2 net­work, is plan­ning to increase the cir­cu­lat­ing sup­ply of its gov­er­nance token (OP) next Wednes­day, a year into the coin’s launch. The expan­sion is part of Optimism’s strat­e­gy to aug­ment the pool of votable tokens with­in the Token House, its group of OP hold­ers respon­si­ble for propos­ing and vot­ing on gov­er­nance issues.

See relat­ed arti­cle: Big buys fail to lift NFT mar­kets as reg­u­la­to­ry uncer­tain­ty weighs heavy on crypto