Bitcoin and cryptocurrencies are in the grip of a new challenge. Markets are getting past the debt ceiling drama. On the other hand, the treasury is trying to rebuild its cash balance. Accordingly, cryptocurrencies face difficulties. Citigroup analysts commented on these difficulties. Let’s look at the details.
reverse wind for bitcoin
Citi Research strategists, including Alex Saunders, shared their views. Accordingly, there is a possibility of an upcoming headwind with the Treasury move. Citi analyzed the performance of risky assets during declines. Accordingly, it found that they were vulnerable to higher volatility and weaker returns. Therefore, the near-term outlook does not look so rosy for Bitcoin and Ethereum. Strategists emphasize that both coins provide average negative returns in these scenarios. This is why they emphasized that BTC underperformed significantly in the median state.
TGA, holding money for the treasury, ballooned during the pandemic. It expanded again last year. But right now it’s lower than it’s ever been. As a result, the Treasury will have to replenish its declining cash buffer to maintain its ability to pay its obligations through bond sales estimated at over $1 trillion by the end of the third quarter. This supply boom will draw liquidity from the banking sector. On the other hand, it could raise short-term funding rates in an economy that many say is headed for recession. This does not bode well for digital asset investors, who are just recovering from fears of a no-deal scenario for the US debt ceiling. Bitcoin rallied on Friday. However, it is still hovering around the $27,000 level, which it has not been able to break for several weeks.
Thoughts for cryptocurrencies
“Crypto markets were not immune to fears of US defaults,” the strategists said. There were sales on negative developments. On the other hand, it has made headlines showing progress.” Strategists added that crypto typically “performs well” amid problems with traditional financial institutions. They also cite the banking turmoil of March, a time when Bitcoin outperformed. But perhaps the risk of default by an institution like the US government “does not look positive for decentralized digital assets.”
For example, strategists have used the Cboe Volatility Index, or VIX, as an indicator of their fear to gauge whether a solution will pass before the market hits the ceiling. Whenever stock market concerns eased, Bitcoin then performed better. Strategists emphasize:
“While, in theory, the potential default of an institution as influential as the US government bodes well for decentralized technologies and systems, this may not be the case right now given the crypto industry is still in its infancy and regulations are not yet well defined. Another theory is that not raising the debt ceiling will lead to lower U.S. government debt and a lower fiscal deficit, giving the dollar more credibility.”
Expectations for BTC
On Friday, the Senate suspended the US debt ceiling. Passed legislation imposing restrictions on government spending until the 2024 elections. The precaution now goes to President Joe Biden, who made the deal with Speaker of the House of Representatives Kevin McCarthy and plans to sign it days before the US defaults. Year-to-date, Bitcoin has rallied around 60% after starting the year around $16,500. This optimism comes after 2022’s second-worst year in history, down 64%. City Index senior market analyst Fiona Cincotta said that Bitcoin’s support is around $26,500. However, he added that falling below $25,000 could mean a deeper sell-off.
Price-range-bound trading has been the defining feature of Bitcoin lately. Its 30-day volatility remains low at 1.8%. It also stands firmly within its two-month trading range. According to K33’s Bendik Schei and Vetle Lunde, the implied volatility of options has been bearish over the past week, despite increasing short-term volatility. Still, products traded on the Bitcoin exchange continue to see steady exits. Therefore, when we look at cryptokoin.com, Bitcoin volumes – spot and futures – are in a bearish trend.
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