Bitcoin and other cryptocurrencies showed resilience on Wednesday, bucking the downward trend in stocks following Fitch Ratings’ surprise downgrade of the U.S. This market reaction highlights two positive aspects for cryptocurrencies.
Bitcoin Gains Momentum, Approaching Support Level
The price of Bitcoin has witnessed a 2% increase in the past 24 hours, reaching nearly $29,500. This surge brings the largest digital asset closer to the lower end of the $30,000 to $31,000 range, which has provided strong support for several months. Last week, Bitcoin temporarily dipped below the psychologically significant $30,000 mark, resulting in a bearish technical outlook. Therefore, reclaiming this level is vital, making the brief breach above $30,000 early Wednesday morning particularly significant.
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 on buying back the most sagging assets was supported by the unexpected news of Fitch downgrading the U.S. long-term rating… which triggered an impulsive pull into Bitcoin and gold.”
Fitch Ratings’ Downgrade and Its Impact on Cryptos
In a surprise move late Tuesday, Fitch lowered its rating for the U.S. from AAA to AA+, citing “expected fiscal deterioration” in the coming years. This decision follows the highly publicized battle over the debt ceiling earlier this year.
Despite this credit downgrade, cryptocurrencies have surged forward, signifying positive implications for digital assets on two fronts. First, there is a theoretical aspect tied to Bitcoin’s foundation as a decentralized alternative currency: if confidence in the U.S. continues to falter, more individuals may turn towards adopting digital assets as an alternative.
The Relationship Between Central Government Credit and Cryptocurrency
According to Yuya Hasegawa, an analyst at crypto exchange Bitbank, damage to the central government’s credit could potentially increase demand for decentralized, stateless currency.
However, it is important to note that this statement may be exaggerating the impact. While Bitcoin did experience a slight rise alongside gold – a historical safe-haven asset, increasing by 0.4% on Wednesday to reach $1,986 per ounce – cryptocurrencies tend to be influenced by trends other than traditional principles.
The positive reaction from the market can be attributed to a deviation from the usual negative correlation between cryptocurrencies and equities. On Wednesday, the Dow Jones Industrial Average and S&P 500 were expected to experience significant declines.
Despite recent positive catalysts failing to significantly impact digital asset prices, Bitcoin has not fallen as a result of negative catalysts for stocks. This assurance suggests that any remaining link between stocks and cryptocurrencies is not solely based on downside movements.
In addition to Bitcoin, Ether, the second-largest cryptocurrency, rose by 1.5% to surpass $1,850. Smaller cryptocurrencies, such as Cardano and Polygon, also experienced gains of around 1%. On the other hand, meme-based coins like Dogecoin and Shiba Inu saw more muted performance, with losses of less than 1%.