Will the lifting of the US Debt Default Crisis Bring BTC into A Bull Market?

Last week (5/22-5/28), the overall performance of cryptocurrencies was up by 3.8%. Among them, Solana had the largest increase (6.4%), while Stellar and Litecoin had the smallest increase (both 0.7%). In addition, Bitcoin rose by 4.6%.

Fluctuation of mainstream cryptocurrencies from May 22nd to May 28th, Source: MacroMicro

According to Bloomberg, U.S. President Biden and Republican congressional leader Kevin McCarthy have reached a preliminary agreement on the U.S. debt ceiling, raising it to $31.4 trillion and officially removing the risk of a U.S. debt default.

After the news broke out, the cryptocurrency market responded with a rare bullish trend. The total market value increased from $1.12 trillion to $1.17 trillion, up 4%. Bitcoin rose from $26,000 to $28,000, an increase of nearly 8%. However, how long will this upward trend continue and to what extent?

Cryptocurrency market Cap and Bitcoin price trend changes, Source: MacroMicro

Mitrade Analyst: In the previous weekly report, we mentioned that the rise or fall of the entire cryptocurrency & Bitcoin depended on whether the US debt defaulted. Currently, this news has been settled, and the market has also clearly shown an upward trend. However, the result only indicates that the US has avoided default risk by raising the debt ceiling, but it does not mean that the economy is really improving, which is exactly the basis for a bull market.

Therefore, it can be considered that the current uptrend is just a short-term boost by favorable news with difficulty in sustainability. Next, the cryptocurrency market will have further rebounds, but the total market value is unlikely to exceed $1.3 trillion, and Bitcoin will also face resistance at $30,000, so blind optimism is not advisable.

On May 23rd, the Hong Kong Securities and Futures Commission held a press conference to announce a series of news related to virtual currencies, involving regulations on exchanges, stablecoins and anti-money laundering measures. The most noteworthy information is another announcement allowing retail investors to trade eligible cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Polkadot, Solana, Cardano, Avalanche, Polygon, and Chainlink.

These 10 cryptocurrencies were selected based on the regulations of the Securities and Futures Commission (SFC) in Hong Kong, which require a minimum of 12 months of regulatory compliance and inclusion in at least two major independent investment companies' investable indices. In fact, they have some very important characteristics: they are ranked among the top 15 by market capitalization (with LINK and BCH in the top 30), and are almost not dominated or controlled by any single institution or individual.

Top 15 cryptocurrencies by Market Cap (excluding stablecoins), Source: CoinMarketCap

Mitrade analyst: Cryptocurrencies saw a slight increase on May 23, but the magnitude was small. Furthermore, the next day saw a downturn, indicating that the event did not attract sufficient capital inflow. However, there is another potential impact of this event, which is to accelerate the decline of smaller cryptocurrencies, driving liquidity to higher market value token and creating the Matthew effect, where larger market capitalization cryptocurrencies attract more funds, making them more resistant to subsequent declines.

Therefore, as an ordinary user, especially a novice, it is advisable to prioritize these high market value cryptocurrencies and not select lower market capitalization cryptocurrencies to avoid stepping on landmines. In addition, only by sticking together with high market value currencies can the market stabilize and avoid highly dispersed funds triggering a crash.