Bitcoin and other crypto prices dropped on Monday as risk-off sentiment spread across the financial market.
Bitcoin (BTC) fell to $102,870 after trading near the $106,000 level on Sunday. Ethereum (ETH) declined to $2,400, while the total market capitalization of all cryptocurrencies dropped by 1.67% to $3.25 trillion.
The selling pressure mirrored the broader financial market, with futures tied to the Nasdaq 100, Russell 2000, and S&P 500 all down over 1%. Dow Jones futures slipped by 0.70%.
Bitcoin and crypto prices fell after Moody’s US downgrade
Stocks and crypto fell as investors reacted to Moody’s decision to downgrade the US credit rating. In a statement on Friday, the agency warned that the country’s fiscal outlook was deteriorating.
The US Debt Clock shows the national debt has risen to over $36.8 trillion, up from $21 trillion in 2020. That figure is expected to rise further following a new agreement in the House on the so-called Big, Beautiful Bill.
The bill includes tax cuts estimated to cost between $4.5 trillion and $5 trillion over the next decade, partially offset by projected spending cuts of $1.5 trillion to $2 trillion.
Historically, markets have reacted negatively to credit rating downgrades of major economies. Stocks and cryptocurrencies declined on August 1, 2023, when Fitch downgraded the U.S. from AAA to AA+. A similar move occurred on August 5–6, 2011, when S&P Global made the same downgrade.
Some analysts, however, downplayed the impact of Moody’s decision. In a post on X, Jim Bianco called the downgrade a “nothingburger.”
In theory, the deteriorating US public finances is a bullish catalyst for Bitcoin, an asset that is slowly becoming a safe-haven asset. In a lengthy white-paper, BlackRock argued that Bitcoin was becoming a good asset to hedge against the soaring US debt and the rising risk of a default.
BlackRock noted that Bitcoin was a “scarce, non-sovereign, decentralized asset with a limited supply.”
Since that paper’s release, Bitcoin’s fundamentals have improved. Supply on exchanges and in over-the-counter markets has dropped to multi-year lows, while demand via exchange-traded funds has surged. Cumulative inflows into spot Bitcoin funds have surpassed $41 billion.
More companies are also adding Bitcoin to their treasuries. Therefore, Bitcoin and crypto prices will likely bounce back from this panic. For example, most altcoins have rallied in the past few weeks as the Liberation Day tariffs fears eased.
