Bitcoin and other cryptocurrencies showed strength on Wednesday, defying the market trend of declining stocks, following Fitch Ratings’ unexpected decision to downgrade the U.S. This market reaction is significant for cryptocurrencies for two key reasons.
Bitcoin’s Price Rally
Over the past 24 hours, the price of Bitcoin has increased by 2%, bringing it close to $29,500. The largest digital asset is now approaching the lower end of the $30,000 to $31,000 range, which has served as a support level for several months. Last week, Bitcoin dropped below the psychologically important $30,000 mark, leading to a deterioration in the technical outlook. Therefore, reclaiming and sustaining a price above $30,000 is crucial. In fact, Bitcoin briefly breached this level during a spike early on Wednesday.
According to Alex Kuptsikevich, an analyst at broker FX Pro, “The first cryptocurrency experienced impressive upward momentum, touching $30,000 early Wednesday morning. The market’s initial rebound in purchasing undervalued assets was reinforced by the unexpected news of Fitch downgrading the long-term rating of the U.S., which triggered a sudden surge into Bitcoin and gold.”
Fitch’s Credit Downgrade
Late Tuesday, Fitch downgraded the U.S. credit rating from AAA to AA+. This surprising move followed the well-publicized battle over the debt ceiling earlier this year. Fitch justified its decision based on concerns about “expected fiscal deterioration” in upcoming years.
Implications for Cryptos
The credit downgrade fueled a rally in cryptocurrencies, signaling positive developments on two fronts for digital assets. Firstly, from a theoretical perspective, this trend is closely tied to Bitcoin’s origins as a decentralized alternative currency. If confidence in the United States continues to decline, it may encourage more individuals to embrace digital assets.
The Relationship Between Cryptos and Equities: A Positive Market Reaction
According to Yuya Hasegawa, an analyst at crypto exchange Bitbank, any damage to the central government’s credit could potentially raise the demand for decentralized, stateless currency. However, it is important to note that Bitcoin’s recent rise alongside gold does not necessarily indicate a direct correlation between cryptos and highflying principles.
Instead, the current market reaction is more positive due to a noticeable divergence from the typical link between cryptos and equities. In contrast to the anticipated decline of the Dow Jones Industrial Average and S&P 500 on Wednesday, stocks have been consistently performing well in recent weeks. On the other hand, Bitcoin has experienced a period of historic stagnation despite various risk-sensitive catalysts that should theoretically benefit both cryptos and equities. This lack of movement in response to positive catalysts indicates that any remaining connection between stocks and cryptos is not solely limited to downward trends.
Beyond Bitcoin, Ether—the second-largest cryptocurrency—has seen a 1.5% increase, surpassing the $1,850 mark. Smaller altcoins such as Cardano and Polygon have also shown buoyancy, each experiencing approximately a 1% rise. However, memecoins like Dogecoin and Shiba Inu have seen a more muted response, with less than a 1% decrease in value.
In conclusion, while some believe that the central government’s credit issues may lead to an increased demand for decentralized currencies, the current market dynamics demonstrate a positive reaction and a breakaway from the typical relationship between cryptos and equities.