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Bitcoin (BTC) suffered its biggest weekly loss in five months, ending the week of April 23 down by 9% at $27,600. The slump came as U.S. bond yields rose and the liquidity of the dollar declined, which decreased the appeal of risk assets, including cryptocurrencies. TradingView and CoinDesk data show this was BTC’s largest single-week percentage loss since November 2020.
The 10-year U.S. Treasury note yield increased by six basis points (bps) to 3.58% during the week, its second straight weekly gain. The USD Liquidity C,onditions Index, which tracks the greenback’s supply in the monetary system, also slipped to its lowest in over a month, hitting $6.13 trillion.
In addition to the decline in the dollar liquidity index, traders also factored in a higher probability of the Federal Reserve (Fed) continuing its tightening cycle with a 25 basis point rate hike in May. This likely had a negative impact on BTC, which has closely tracked local peaks and troughs in the dollar liquidity index since the start of the year. Noelle Acheson, the author of the Crypto Is Macro Now newsletter, noted that BTC is still heavily impacted by the overall macro mood and monetary liquidity expectations, despite being an “insurance” asset that should outperform when other asset groups are suffering. Looking ahead, Dessislava Laneva, macro analyst at Paris-based crypto data provider Kaiko, believes that BTC and financial markets, in general, may see increased price turbulence due to the U.S. debt ceiling issue.
The U.S. government hit its statutory debt limit of $31.4 trillion in January and has been using extraordinary measures to help the government meet its obligations for at least five months. However, the debt ceiling negotiations have been in a deadlock, and one-year credit default swaps, which measure the cost of insuring against government default in the next 12 months, rose to a record high last week, according to the Wall Street Journal. Overall, the decline in BTC’s price this week underscores the cryptocurrency’s sensitivity to broader economic factors and market sentiment and its continued correlation with traditional assets such as the U.S. dollar and Treasury yields.
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