The cryptocurrency market, specifically Bitcoin and Ethereum, is engulfed in flames ahead of the vote on the US debt ceiling agreement and the possibility of a rate hike.
A proposal to raise the debt ceiling to $31.5 trillion and a new federal spending cut plan is currently being considered in the House of Representatives.
Although there are many signs that the bill is passed, nothing is certain until everything is decided. This has led to anxiety pervading the market and affecting the value of cryptocurrencies.
The “crossroads” between politics and finance often lead to significant changes in the markets, and the cryptocurrency market is no exception. As the US Congress prepares for a major vote to raise the debt ceiling, Bitcoin and Ethereum recorded notable fluctuations.
These market changes are starting to show the potential effects from the vote on the crypto industry.
The cryptocurrency market “holds its breath” waiting for the results of the vote on the debt ceiling agreement
On Wednesday, the cryptocurrency markets, especially Bitcoin and Ethereum, plunged due to the upcoming vote on a proposal to raise the US debt ceiling, in addition to the possibility of the Federal Reserve raising interest rates. due to positive labor market data.
A bill to raise the debt ceiling to $31.5 trillion while implementing new federal spending cuts was introduced to the House of Representatives on Tuesday. The bill is expected to be discussed and voted on on Wednesday.
If the House passes the legislation, it will move to the Senate and discussions could drag into the weekend, with the June 5 deadline fast approaching.
Co-Manager of Trading at Themis Trading, Joe Saluzzi commented that:
“Despite many signs that the agreement will eventually be passed, there are still some words of opposition from members of Congress. So until the final results come out, nothing is certain.”
April’s data showed a spike in U.S. jobs, suggesting strength in the labor market likely prompting the Federal Reserve to make another interest rate hike in June.
Economist Mohamed El-Erian says:
“I think the Fed will have to decide between two policy mistakes: apply the brakes very hard and risk a recession, or brake lightly in a stop-go model… and risk inflation. high growth in 2023.”
The market currently predicts a 25 basis point increase at the Fed’s June 13 and 14 meeting with a probability of about 71%.
This week, investors eagerly awaited the Labor Department’s May jobs report, scheduled for release on Friday. This report can provide more insight into the resilience of the US economy in the face of high interest rates and inflation.
Bitcoin and Ethereum Reaction to Debt Limit Bill
The debate around the debt ceiling has cast a shadow over the cryptocurrency market. However, signs of earlier movements pushed Bitcoin up 5.26% to a peak of $28,500 on Sunday and Ethereum up 5,53% to $1,930 in May.
However, that changed on Wednesday as the crypto market reversed course on waning optimism surrounding the move to raise the debt ceiling.
The top cryptocurrency by market capitalization, Bitcoin is down 3%, trading at $26,830. Meanwhile, Ethereum was also affected, dropping 2.89% to $1,845.
These two cryptocurrencies appear to be gearing up for their first bearish streak in 2023. Bitcoin is on track for an 8% plunge, marking its worst month since November 2022. Ethereum is down 2.5% in month. If this downtrend continues until the end of the day, May will be ETH’s worst performing month since December 2022.