Bitcoin Breaks Microstrategy BTC Purchase Plans Above $29.9K; Ada, Sol Turn Green
Bitcoin erased initial gains following MicroStrategy’s announcement of increasing its coin inventory and Fitch’s downgrading of the US state’s credit rating.
Risk assets, including Bitcoin, took a hit after S&P downgraded the US in August 2011.
Bitcoin (BTC) erased gains earlier in the Asian session as the dollar index and Treasury yield erased losses following Fitch’s downgrade of US Treasury ratings from top rating.
As of 04:25 UTC, the leading cryptocurrency by market value was changing hands at $29,600, down from the peak of $30,032 registered at 01:30 UTC, according to AskFX data.
The decline wiped out almost all gains made after bitcoin holder MicroStrategy announced plans to raise funds to increase its coin holdings and rating agency Fitch downgraded its US government credit rating from AAA to AA+, citing repeated risky attempts at the debt ceiling.
The dollar index (DXY), which tracks the value of the greenback against major fiat currencies, fell knee-jerk from 102.14 to 101.95 in response to the ratings downgrade, before recovering to 102 at press time. 25 to recover. The 10-year government bond yield saw a similar fall, rising to over 4%. Bitcoin tends to move in the opposite direction to dollar and bond yields.
Two of the so-called big three rating agencies have now set the standard rating at AA+. Moody’s still has the top rating of AAA.
The S&P downgraded the US to AA+ on August 5, 2011, causing the dollar index and government bond yields to fall but quickly recover. Stocks plummeted, with Bitcoin falling over 38% in the same month, TradingView data shows. The only major asset to rally alongside the DXY was gold, which gained over 10%.
If history is any guide, the Dollar Index is likely to continue rising, causing even more problems for Bitcoin and stocks, although looming buying pressure from MicroStrategy could prop up the cryptocurrency’s price.
At the time of writing, futures linked to the S&P 500, Wall Street’s benchmark stock index, were hinting at a bearish open a decline of 0.5%. As Asia began its trading day, bitcoin jumped above $30,000 after software developer and bitcoin whale MicroStrategy filed a filing with the Securities and Exchange Commission (SEC) for up to $750 million worth of shares sell, with the intention of using the capital to buy more BTC.
The main US stock indexes — the Nasdaq Composite and the S&P 500 — fell 0.4% and 0.3%, respectively, on Tuesday.
Mark Connors, head of research at Canadian digital asset manager 3iQ, wrote that the recent “change in market sentiment was NOT limited to digital assets as stocks took a breather.”
“Our benchmark cross-asset correlation metric hit a 20-year high as bonds and equities sold off,” Connors wrote. “Looking forward, we will watch for a sharp reversal of this historically high correlation – as this has often signaled risk reversal.”
ETH and CRV follow BTC’s decline
The Market Index, a measure of the Crypto Markets Performance, fell from $1,290 to $1,279 but still up 2% on a 24-hour basis.
Ethereum’s native token fell 0.5% from early Asian session highs to $1,860 on Bitcoin’s negative trend reversal. According to an analyst, Ether is overvalued and could fall further. The options market sees price weakness over the next six months.
Curve’s CRV token fell 5% to 58 cents. The cryptocurrency surged more than 20% to above 62 cents on Tuesday, likely on the back of a short squeeze. The surge comes after Sun bought more than $2 million worth of the token and pledged additional support from a liquidity pool on the Tron network. Curve fell victim to an exploit late Sunday that triggered a sell-off in CRV that worried the market about a possible liquidation of the Curve founder’s large borrowed position.
“There are clear concerns that there could be a liquidation cascade within the Ethereum DeFi ecosystem,” wrote Richard Mico, the US CEO of payments and compliance infrastructure provider BanxaI, in an email. “I don’t know how.” Likely such a cascade is, but the market seems nervous about these metastatic issues. The irony is that DeFi has held up so well during the 2022 explosions, and yet it is a more recent exploit that could now itself be the trigger for a DeFi explosion.”
Mico Adding that a judge’s ruling against stablecoin issuer Terraform Labs’ motion to dismiss a lawsuit against the SEC could ”add to the relatively weak sentiment in the market,” he noted, investors were buying up bitcoin after it had recently “dropped below $29,000 … pretty quickly,” a sign that buyers are ramping up in anticipation of the SEC approving one of the recent spot BTC ETF filings.
UPDATE (1 Aug 2023, 23:43 UTC ): Changes the headline and first paragraphs to reflect the MicroStrategy Submission and to reflect the bitcoin price surge.
UPDATE (2 Aug 2023, 1:24 UTC): Reflects the latest price increases for Bitcoin and altcoins.
