Cryptocurrencies fall again; the Fed and debt ceiling drag Bitcoin down

Cryptocurrencies aren´t able to recover. Bitcoin (BTC) has dropped nearly another 2% in the last 24 hours and threatens to lose $26,200, while Ethereum (ETH) follows in its wake, falling 2.10% and dropping back to $1,780. Barring an unexpected turn of events, May will be the worst month so far in 2023 for digital assets.

"Bitcoin remains rangebound and should continue to consolidate near the lower boundaries of its downward sloping trading range, with the $25,000 level providing massive support," stated Edward Moya, senior market analyst at OANDA.

According to Moya, the reigning cryptocurrency "is under pressure as the risk of a U.S. default grows," and the U.S. central bank faces the prospect of continuing its monetary tightening," while the Federal Reserve (Fed) is once again signaling that it may once again step on the gas and tighten U.S. monetary policy. "Bitcoin is going to be very sensitive to surging Treasury yields as too many crypto/blockchain companies will struggle with financing. It is hard enough to find a bank that will deal in cryptos, let alone take out loans for long-term projects," the expert explained.

Regarding the US debt ceiling, the situation remains deadlocked. Or rather, it sounds like a broken record. If last week it seemed that the agreement was close to being reached and was just being postponed to keep up appearances, the last few days have made it clear that Republicans and Democrats do not seem to be willing to compromise and avoid a historic default for the world's leading economy. According to the Republican Speaker of the House of Representatives, Kevin McCarthy, yesterday's negotiations showed that the positions are still "distant" and the rating agency Fitch Ratings seems to agree.

U.S. Treasury Secretary Janet Yellen has set a June 1 deadline for an agreement, trying to put more pressure on policymakers to reach a deal. However, analysts such as those at Goldman Sachs and Nomura believe the deadline will be a little later, setting up a series of days that will test the nerves of investors on both sides of the Atlantic. "It may be that a market puke is what is needed to generate the urgency needed for politicians to stop playing Russian roulette with the US economy," commented Michael Hewson, head of research at CMC Markets in London.

On the other hand, the Fed minutes have shown a clear division among bankers over a possible rate hike. Several participants in the meeting noted that, "if the economy evolves in line with its current outlook", a further rate hike "may not be necessary". Others, however, "commented that, based on their expectations that progress in returning inflation to 2% may continue to be unacceptably slow, further policy tightening would probably be warranted at future meetings".

Experts at Rabobank or Oxford Economics highlight the divergence of positions between Chairman Powell and regional bankers, with the former leaning toward a pause and the latter for stepping on the accelerator. "The last time a Fed governor disagreed was in 2005," the British firm noted. In addition, the experts at Pantheon Macroeconomics believe that "Fed officials appear at last to be taking seriously the idea that their aggressive actions over the past year, and the banking crisis, ultimately will seriously depress growth."

On the other hand, comments in defense of cryptocurrencies by Ron DeSantis, Florida governor and Republican candidate for the US presidency, have been drowned out by these two developments. In a Twitter space in which he announced his candidacy alongside Elon Musk, the politician from the most hard-line branch of the Republican Party stressed that "the current regime, clearly, has it out for Bitcoin" and that "if it continues for another four years, they’ll probably end up killing it."

In the rest of the market, there have been significant drops in the main tokens. Cardano (ADA), for example, falls nearly 3% and Ripple (XRP) retreats 2%. Polygon (MATIC) rises around 1%.