Strong bonds and dollar put Bitcoin and cryptos under pressure

There are moderate movements in the cryptocurrency market. Bitcoin (BTC) rallies 0.6% in the last 24 hours and manages to hold at $26,200, while Ethereum (ETH) follows in its wake, although it fails to regain $1,600.

Digital assets are still under great pressure due to a series of factors. On the one hand, the bond rally has dented cryptos' price, dissolving risk appetite altogether. In recent days, the yield on the 10-year Treasury note has reached 2007 highs, while the German bund yield has reached levels not seen in more than a decade.

One of the factors driving this bond rally has been the possible US government shutdown. The rebellion of the Republicans in the House of Representatives that are sympathetic to Donald Trump is once again shaking the financing of the world's leading economy, as it would have to shut down the public administration if an agreement is not reached to increase funding for government agencies and public museums, among others, before September 30. The shutdown would leave thousands of people temporarily suspended from work and pay, which would have a significant effect on the country's economy... and Moody's warned that the US credit rating could also be jeopardized.

The goal of Trump's supporters is to revoke the agreement signed in June between US President Joe Biden and House Speaker Mick McCarthy to suspend the government's borrowing limit. The so-called Freedom Caucus is asking for more cuts, specifically a public spending limit of $1.47 trillion for fiscal year 2024, which is $120 billion more in cuts than agreed.

On the other hand, the US dollar is gaining strength again. The greenback is at a 10-month high today, on Tuesday, against a basket of major currencies. In addition to the aforementioned bond rally, a combination of strong economic data and hard-line rhetoric from the Federal Reserve (Fed) has caused the consensus to begin to see one more rate hike by the U.S. central bank as more likely. Many had been betting that the dollar would fall quickly once short-term rates peaked, but it could continue to climb if Powell and his entourage step on the accelerator again.

In this regard, Neel Kashkari, president of the Minneapolis Fed, indicated that because of the surprising resilience of the U.S. economy, the Fed will likely need to raise interest rates further and keep them at current levels for a while to bring inflation down to 2%.

"If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off," he stated at an event at the Wharton School of Business. It should be noted that Kashkari is one of the most hawkish bankers on the Federal Open Market Committee (FOMC).

On the other hand, Glassnode analysts point out that there are several indicators that point to a resurgence of bearish sentiment in the market, such as a drop in the average purchase price of short-term investors in the last 155 days. Similarly, these experts highlight that the inflow of new investors into the cryptocurrency market this year has been positive, but very small. In addition, blockchain data shows that the number of Bitcoins deposited on exchanges has increased in recent weeks, which may suggest a prolonged period of Bitcoin weakness.

"Looking at the BITCOIN chart, we see that the price is trading below SMA100 and SMA200 and sellers may want to test the 38.2% Fibonacci Retracement at $25,600, which has proven to be important support so far. Breaking this limit could indicate a test of $21,700 where the 61.8% Fibonacci runs. On the other hand, however, the MACD indicates a bullish divergence similar to that of Fall 2022: key resistance remains around $28,000," explained Hani Abuagla, senior market analyst at XTB.

In the rest of the altcoins market, there are movements similar to those already mentioned in BTC and ETH. XRP's rebound stands out after being one of the cryptos that have performed the worst in recent sessions.