Bitcoin drops sharply for the first time in five months due to declining liquidity in the US dollar and the return of the debt ceiling problem | coindesk JAPAN | Coindesk Japan

Bitcoin (BTC) faced significant selling pressure during the week of April 17-23 as bond yields rose and US dollar liquidity declined.

The top cryptocurrency by market capitalization fell 9% to $27,600, marking the biggest single-week decline since early November, according to data from TradingView and CoinDesk. Yields on 10-year US Treasuries climbed 0.6% to 3.58%, rising for the second straight week, dampening the appeal of risky assets such as cryptocurrencies.

Bitcoin price chart (CoinDesk/Highcharts.com)

The US Dollar Liquidity Condition Index, a measure that tracks the supply of US dollars in the monetary system, fell to $6.13 trillion, the lowest level in more than a month, according to TradingView data. Traders also expect the US Federal Reserve (Fed) to raise interest rates by 0.25% in May, likely continuing the tightening cycle.

Since 2021, Bitcoin and other cryptocurrency markets have closely tracked local peaks and troughs in the dollar liquidity index. Bitcoin rose to then-highs in early March as the Fed opened the liquidity taps to curb the banking crisis, boosting the Dollar Liquidity Index from $5.82 trillion to $6.35 trillion. rose to $8,000.

“With no encouraging signs in terms of financial liquidity, BTC continued to fall, trailing other major crypto assets after its plunge on Monday,” says Noel, author of the popular newsletter “Crypto Is Macro Now.” Noelle Acheson writes in the weekend edition of the newsletter.

“While BTC is an ‘insurance’ asset that should outperform when other asset groups are struggling, it is strongly affected by the overall macro-mood, which is heavily driven by financial liquidity expectations,” said Acheson. added Mr.

Dessislava Laneva, a research analyst at Kaiko, a Paris-based crypto asset data firm, said that the impact of the U.S. debt ceiling could lead to a short-term price drop for bitcoin and financial markets in general. Volatility may increase.

The U.S. government hit its statutory debt limit (a self-imposed borrowing limit) of $31.4 trillion in January, and the Treasury Department will implement special measures to help the government meet its obligations for at least five months. was forced to These measures boosted dollar liquidity and sustained buying of risky assets.

Since then, debt ceiling talks have stalled. Credit default swaps (CDS), which measure the cost of insurance against government defaults over the next 12 months, rose to record highs last week, according to The Wall Street Journal (WSJ).

The cost of insuring US debt for one year via CDS has soared to the **highest on record** as the debt-ceiling debate has heated uphttps://t.co/jtCzQoFRvE @JoshZumbrun pic.twitter.com/ErTS57Qge0

— Gunjan Banerji (@GunjanJS) April 21, 2023

Current prices in the CDS market indicate a 2% probability of default. Andy Sparks, head of portfolio management research at New York-based MSCI (Morgan Stanley Capital International), told the WSJ: as high,” he said.

Observers said the Treasury Department announced in June thatmay run out of fundsI’m worried.

“The debt ceiling drama is a short-term volatility factor that creates uncertainty in the market,” Laneva told CoinDesk.

Bitcoin is still seen as a risky asset and could face selling pressure if the stock dumps at some point. The 2011 debt ceiling crisis took a toll on risky assets as it lost its triple-A sovereign rating to Washington’s impasse.

“If a deal expected later this year goes through, the Treasury Department will need to replenish its reserves, which will reduce liquidity and exacerbate the impact of quantitative tightening (rate hikes) … This situation is likely to continue for the Fed. It may encourage rate cuts, which will ultimately benefit risk assets,” Raneva said.

A potential default could see bitcoin attract haven buying, as it did during the banking crisis in March, according to Tom Dunleavy, an analyst at crypto data firm Messari. I can’t.

｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Image: CoinDesk/Highcharts.com
｜Original: Bitcoin Posts Biggest Weekly Loss in Five Months as Dollar Liquidity Declines, Debt Ceiling Fears Return