Bitcoin Edges Below $28K as Investors Eye U.S. Debt Ceiling Progress

Investors awaited a House vote on the debt limit deal, scheduled for Wednesday.

AccessTimeIconMay 30, 2023 at 10:55 p.m. UTC
Updated May 31, 2023 at 3:51 p.m. UTC

Bitcoin (BTC) fell below $28,000 during U.S. trading hours on Tuesday but then steadied as investors monitored progress on a debt ceiling deal, whose passage remained likely but not assured.

The largest cryptocurrency by market capitalization was recently trading at around $27,740, up 0.1% over the previous 24 hours, although slightly down from its higher perch earlier in the day, according to CoinDesk data.

Bitcoin price chart showed that the cryptocurrency wash trading below $28,000 on Tuesday afternoon. (CoinDesk)
Bitcoin price chart showed that the cryptocurrency wash trading below $28,000 on Tuesday afternoon. (CoinDesk)

BTC topped $28,000 on Sunday, for the first time in almost three weeks, after U.S. President Joe Biden and House Speaker Kevin McCarthy reached an agreement to suspend the debt ceiling until Jan. 1 2025 and prevent the nation from defaulting on obligations as soon as June. The deal also means that the U.S. Treasury would likely issue around $1 trillion of debt to replenish its Treasury General Account.

“Typically, when governments issue debt that takes their debt to GDP at uncomfortable levels, that should be good news for crypto, but too many crypto companies might deal with difficult financing options over the next year,” Edward Moya, senior market analyst at foreign exchange Oanda, wrote in a Tuesday note.

Meanwhile, traders have also revised their expectations for a more dovish, monetary turn by the U.S. Federal Reserve. The CME FedWatch Tool now shows a 66% probability that the Fed will raise interest rates 25 basis points for a fourth consecutive time at its June meeting. Only 28% expected a rate hike just a week ago.

“So far, bitcoin has moved in lockstep with liquidity,” Dessislava Ianeva, research analyst at crypto data firm Kaiko, told CoinDesk. Ianeva noted that quantitative tightening (QT), which usually happens when the central bank looks to reduce its balance sheet, "was partially offset by the Treasury spending its cash at the Fed and Bank Term Funding Program, but that push is now exhausted.”

Further rate hikes combined with QT “would definitely dampen prospects for a significant market-wide rally,” Ianeva said. “That said, other different narratives have increasingly been driving BTC markets this year such as store-of-value, NFTs, as well as technical factors such as supply/demand… (Tether has openly said they'll buy) and liquidity.”

She believes that unlike last year, BTC could show resilience amid further monetary tightening.

Among other digital assets, ether (ETH), the second-largest cryptocurrency by market capitalization, rose roughly 0.6% to change hands at around $1,905. Payments-focused cryptocurrency XRP jumped more than 6% for the day to trade at around 52 cents, while storage protocol Filecoin's FIL token rose by 4% to trade at $4.83.

The CoinDesk Market Index (CMI), which measures overall crypto market performance, was up 0.6% for the day.

After a three-day, holiday weekend equities were mixed. The S&P 500 closed flat on Tuesday, while Dow Jones Industrial Average (DJIA) slid 0.1%. The tech-heavy Nasdaq was up 0.3%.

In bond markets, both 2-year and 10-year Treasury yields dropped 11 basis points to sit around 4.44% and 3.69%, respectively. Crypto prices generally operate inversely to yields.

The House is expected to vote on the debt ceiling deal on Wednesday with some hardline conservatives already indicating that they would not vote for the hard-fought package and a few progressive Democrats yet to commit. “Based on the weekend reaction to the debt ceiling news, an agreement following the vote seems likely to reflect positively on the market in the short term,” Vetle Lunde, a senior analyst at K33 Research, wrote in a weekly note published on Tuesday.

Edited by James Rubin.


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Jocelyn Yang

Jocelyn Yang is a markets reporter at CoinDesk. She is a recent graduate of Emerson College's journalism program.