The crypto market cap took a hit last week, sliding a further 2% on Thursday, bringing the overall global market cap below $1.10 trillion. This comes as Bitcoin price briefly dropped below $26k on May 25 due to investors’ panic over the United States’ negative credit rating watch resulting from political partisanship in debt ceiling talks. Major altcoins such as Ethereum, XRP, Cardano, Polygon, and Solana have also been affected, teetering near key support levels.
Fitch Rating placed the United States’ “AAA” Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative amid the ongoing deadlock in debt ceiling talks between US President Joe Biden’s administration and congressional Republicans. The rating agency has warned that it may downgrade the US rating if the parties do not reach a compromise to raise or suspend the debt limit by June 1.
The impending downgrade and uncertainty surrounding the US Treasury’s finances are reflected in the Treasury General Account which fell from $316 billion to a meager $57 billion in May. Treasury Secretary Janet Yellen has warned that the Treasury will run out of funds by June 1 while the likelihood of a rate hike pause by the US Fed continues to decline.
As a result, Asian stock markets have opened lower, with the US dollar rising to over a 2-month high as the US Dollar Index (DXY) advanced above 104. Meanwhile, Bitcoin’s price is expected to end the week below the critical 200-WMA, with a potential massive selloff on the horizon if it fails to rebound before week’s end. Veteran trader Peter Brandt has warned crypto enthusiasts of a possible drop in Bitcoin’s price below $25k with the next support level at $24.8k.
Despite the bleak outlook, House Speaker Kevin McCarthy remains confident about striking a deal before the June 1 deadline. However, the selloff has already begun due to debt ceiling brinkmanship, which could further impact both stocks and the crypto market. Investors should do their market research and be cautious before making any investment decisions in these uncertain times.