Bitcoin Set to Lock in First Loss of 2023 as Fed, Debt Drama Pushes Crypto Red
A series of Fed governor speeches Wednesday and increased pressure to reach an agreement on the debt ceiling has assets in the red Wednesday
DUSAN ZIDAR/Shutterstock modified by Blockworks
Crypto and equity markets dipped into the red Wednesday as investors evaluated hawkish comments from Federal Reserve governors and kept an eye on Washington for signs of a debt deal.
Bitcoin (BTC) lost as much as 3.2% over the past 24 hours, while ether (ETH) dropped 2.8%. Bitcoin is poised to post its first negative monthly return of the year, losing close to 8% during May. Ether, on the other hand, has lost around 0.2% over the month at the time of publication.
Stocks fared better but still ended Wednesday’s trading session lower, with the S&P 500 and Nasdaq Composite Indexes losing about 0.4% each.
The tech-heavy Nasdaq has outperformed in recent days as lawmakers continue to spar ahead of the extended but quickly-approaching debt ceiling deadline. The Nasdaq has posted close to 4% returns in the last five trading days, dwarfing the S&P 500’s 1.5% five-day return.
But the rally for risk assets wasn’t built to last, Noelle Acheson, author of Crypto is Macro Now and former head of market insights at Genesis, said in her newsletter Wednesday.
“Avoiding a default is a relief, for sure, but the incoming wave of issuance will withdraw liquidity from the market and push yields up,” Acheson wrote. “In theory, this should be the equivalent of another rate hike at least — but the CME swaps market is pricing in another rate hike in June on top of the liquidity impact, with expectations of a cut pushed out to November at the earliest.”
Fed Governors Philip Jefferson, Michelle Bowman and Susan Collins delivered remarks Wednesday to reiterate the central bank’s commitment to reducing inflation. Jefferson, currently in the running to become the next vice chair, said there could be a rate hike “skip” in June, but markets should not rule out the possibility of further rate hikes to come.
“Skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming,” Jefferson said during an appearance at a Fed conference Wednesday.
Markets are still confident the central bank will opt to pause rate hikes at its next meeting in about two weeks. Data from CME Group shows a 72.5% likelihood that committee members keep interest rates the same in June.
The uncertain marco environment and discouraging price action in crypto markets has traders moving out of the asset. Daily crypto trading volume is now at its lowest level since early 2020, data from Kaiko shows.
Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.
Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.
The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.
