On May 23, Bitcoin made a classic range comeback, with markets gaining hope that the United States had found a resolution to the debt ceiling debacle. Despite being stuck in a familiar trading corridor, Bitcoin showed signs of life as news circulated about the potential resolution of the debt crisis by the Biden administration. Although the news turned out to be premature, Bitcoin remained higher on the day as market participants hoped for a bullish continuation.
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Bitcoin’s Short-Term Moves and Trend Lines
To gauge Bitcoin’s short-term movements, traders and analysts, including Skew, examined various trend lines such as hourly and daily exponential moving averages (EMAs). Skew’s Twitter update highlighted the successful bounce from the weekly open reclaim into the bounds of 4H EMAs and 1D EMAs, indicating a positive trend.
The expectation was that real positioning would shift and become evident during the day, potentially leading to a price resolution toward $30,000. Conversely, a failure to hold both EMA trends could result in a price pullback toward the 200-week moving average (MA).
Market Reaction to Debt Ceiling News
Monitoring resource Material Indicators investigated the Binance BTC/USD order book and indicated that the markets had “bought the rumor” regarding the debt ceiling news. Subsequently, two proprietary trading tools converged, delivering long signals. The convergence of these algorithms has historically been a strong signal with a high probability of validation at the candle close.
Analysts’ Warnings and the Debt Limit Situation
While the negotiations to raise the US government’s $31.4 trillion debt limit remain deadlocked, some analysts have warned against a potential deal, suggesting it may bring negative consequences to the crypto market. The US reached its statutory debt limit on January 19, and the Treasury has been implementing extraordinary measures and drawing down its Treasury General Account (TGA) balance to sustain the government’s functioning. This has resulted in bid support for assets like Bitcoin, which are sensitive to swings in US dollar liquidity and fears of a government default and the Federal Reserve’s rate hikes.
The TGA balance has been declining, and according to MacroMicro, it is expected to reach the minimum required $30 billion in early June. To avoid a potentially catastrophic default, a debt deal needs to be reached by that point. Once the debt limit is raised, the Treasury will issue government bonds to rebuild its cash balance, which may reduce liquidity in the system and exert upward pressure on bond yields. Since Bitcoin tends to move inversely to bond yields, such a scenario could have negative implications for the cryptocurrency.
Muted Response to Hong Kong’s Crypto Trading Return
In other news, Hong Kong’s announcement regarding the return of retail crypto trading received a relatively muted response. Bitcoin and Ether experienced slight increases in value after several days of trading within narrow ranges. Industry experts noted that Bitcoin is currently trading within one of the narrowest ranges recorded in the past three years. Various cryptocurrencies, including stablecoins Tether, USD Coin, Ripple, and Binance USD, saw their prices rise.
President Biden’s Stance on US Crypto Tax Proposal
President Biden expressed his disapproval of a proposal to reduce US crypto taxes, emphasizing that it is unacceptable. The overall valuation of the crypto market rose by 2.69 percent in the last 24 hours to reach $1.14 trillion in capitalization, according to CoinMarketCap.
Bitcoin demonstrated a range comeback as hopes of resolving the US debt ceiling crisis emerged. While short-term moves and trend lines indicated positive momentum, analysts warned about potential negative consequences if a debt deal is reached. The crypto market responded with cautious optimism to Hong Kong’s announcement on the return of retail crypto trading. President Biden’s firm stance on the US crypto tax proposal added to the market’s sentiment. As the situation continues to evolve, market participants remain watchful of any new developments that could impact Bitcoin and the broader cryptocurrency market.