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and other cryptocurrencies advanced on Wednesday, bucking declines across stocks after Fitch Ratings downgraded the U.S. in a shock move. The market reaction bodes well for cryptos for two reasons.
The price of
has gained 2% over the past 24 hours to near $29,500, with the largest digital asset getting closer to the bottom end of the $30,000 to $31,000 range that has been a support for months. Bitcoin fell below the psychologically important $30,000 level last week, prompting a deterioration of the technical outlook, so a return above $30,000—which it briefly breached in an early Wednesday spike—is key.
“The first cryptocurrency experienced impressive upward momentum, touching $30,000 early Wednesday morning,” said Alex Kuptsikevich, an analyst at broker FX Pro. “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 lowered its rating to AA+ from AAA late Tuesday in a surprise move that follows the high-profile fight over the debt ceiling earlier this year. Fitch cited “expected fiscal deterioration” in the coming years among its rationale.
Cryptos advanced on the back of the credit downgrade—a move that is a good sign for digital assets on two fronts. One is largely theoretical, and linked to Bitcoin’s roots as a decentralized alternative currency: If confidence in the U.S. continues to deteriorate, it could push more people to adopt digital assets.
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“Damage to the central government’s credit could raise demand for decentralized, stateless currency,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank.
That might be overplaying it a bit, though. While it’s true that Bitcoin rose alongside gold—a historical haven asset, up 0.4% Wednesday to 1,986 an ounce—cryptos tend to move on the back of trends other than highflying principles.
The market reaction is positive, rather, more so because it shows a departure from the downside link between cryptos and equities. The
and
were poised for firm declines on Wednesday.
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Stocks have marched higher in recent weeks, while Bitcoin has seen a period of historic stagnation despite risk-sensitive catalysts that should buoy both cryptos and equities. While positive catalysts have failed to do much for digital asset prices of late, Bitcoin has in the past fallen on the back of catalysts negative for stocks. The fact that this hasn’t happened is reassuring that any link remaining between stocks and cryptos isn’t isolated to downside moves.
Beyond Bitcoin,
—the second-largest crypto—rose 1.5% to above $1,850. Smaller cryptos or altcoins were also buoyant, with
and
each up around 1%. Memecoins were more muted, with both
and
shedding less than 1%.
Write to Jack Denton at jack.denton@barrons.com
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