Bitcoin and major altcoins faced further declines this week as they continued to correct from their recent highs. The market sentiment has been influenced by two significant factors - the ongoing debt-ceiling crisis and the Federal Reserve's interest rate trajectory.
Related Articles
The latest economic data, including unexpectedly robust GDP and employment figures, along with lingering inflationary pressures, have prompted speculations of an additional 25 basis points hike by the Fed before pausing.
The primary catalyst for the recent market weakness is the uncertainty surrounding the debt-ceiling negotiations in the United States. While historically the US government has always resolved the debt-ceiling issue, the heightened uncertainty has led to a liquidity drain from risky assets, including stocks and cryptocurrencies.
Fears of a potential US default have pushed up US Treasury yields, strengthening the US dollar. As a result, the greenback has attracted some safe-haven flows, further exerting downward pressure on cryptocurrencies.
Interestingly, stocks have been gaining ground despite the recent struggles faced by cryptocurrencies. This divergence in performance can be attributed to the AI frenzy that has dominated the equity space. This phenomenon is unrelated to digital coins or the broader macroeconomic landscape, which may explain the weakening correlation between stocks and cryptos.