The prestigious rating agency Fitch lowered the credit rating of the US governme from AAA to AA+ on August 10. An importa eve in the financial world that means a decrease in trust in this coury and its governme’s ability to efficiely manage its debts. But can this issue lead investors to buy Bitcoin as a valuable asset, causing the price of this digital currency to grow?
According to Coielegraph, the downgrade has pushed investors io a more cautious stance, prompting many to pull their money out of assets such as stocks, silver, oil and long-term bonds. In this situation, they prefer moving towards cash and short-term bonds; Because they are considered safer options in economic instability.
As the chart above shows, market reaction to Fitch’s decision to downgrade the US governme’s credit rating was broad, affecting commodities, fixed income, bonds and equities alike. This issue will have implications for various financial institutions and investme portfolios, including Bitcoin.
Some traders are now wondering whether bitcoin’s rarity and resistance to censorship could provide a safe haven from the broader “flight to safety” moveme triggered by a worsening US credit rating. Flight to safety is a phenomenon in financial markets and occurs when investors sell their high-risk assets and move to safer investmes such as gold.
The downgrade had little effect on the markets
A report by Moody’s Analytics in May poied to a poteial domino effect in which a downgrade of US Treasury debt could lead to further downgrades in the financial sector. It is worth noting that only Fitch and S&P have rated the US credit rating at AA+, Moody’s Analytics has maiained the index’s rating at AAA level with a stable outlook.
Ierestingly, the cost of insuring U.S. governme debt against default, as defined in the “credit default insurance” documes, has remained largely consta after the downgrade. An issue that is surprising in its stability in the face of such news.
This financial instrume (credit default insurance) is like an insurance policy to protect against the risk of debt default, where investors pay a premium to receive compensation if the couerparty (in this case, the US governme) defaults.
This stability shows that investors are not worried about the immediate impact of the downgrade. One poteial reason is that US Treasuries are considered one of the safest investmes globally; Because they have the support of the governme of this coury. The bond issuer (borrower) guaraees to repay the debt with ierest at the specified maturity.
Keep in mind that daily yield fluctuations are less importa given the steady increase in 5-year governme bond yields over the past 2 weeks. This could be linked to reduced investor confidence in US debt manageme and increased demand for higher yields.
Apart from volatility in Treasury yields, a decline in the US dollar index (DXY), which measures the value of the US dollar against other currencies, could be troublesome. If this leads to less confidence in traditional assets, investors will likely turn to alternative assets, poteially increasing the appeal of Bitcoin.
During the last 2 weeks, the US dollar index has increased from 99.5 to 102.6, which will mean a possible change in investors’ inclinations. They may be pulling their money out of Treasuries, stocks and commodities and io cash, which could highlight the dollar’s appeal in times of economic instability.
Downward outlook for Bitcoin price in the short term
The stability of credit default insurance costs for Treasuries and the strengthening of the US dollar indicate that investors are likely to increase their cash holdings in aicipation of market turmoil.
As a result, after the downgrade of the US credit rating, we will probably not see the price of Bitcoin grow in the near term. Investors’ initial drive to raise liquidity during market turmoil often leads them to overlook the benefits of deceralized assets.
Finally, given Bitcoin’s fixed supply and scarcity, the digital currency’s role as a valuable asset will be highlighted amid rising governme debt that could erode the value of cash. As a result, investors may increasingly view Bitcoin as a safe haven and a powerful asset class that is also resista to censorship due to its deceralized nature.
