What happened
The stock market is closed in the U.S. on Monday, so the only way to trade the debt ceiling deal has been in crypto, which has moved sharply higher in the last few days. Counting from the market close at 4 p.m. ET of Friday, Bitcoin (BTC -3.22%) is up 3.3%, Ethereum (ETH -1.71%) jumped 2.8%, Dogecoin (DOGE -5.76%) is up 3%, and Solana (SOL -4.00%) has moved 4.8% higher.
This is despite modestly negative trading on Monday. From Wednesday's low to late Sunday's high, Bitcoin jumped as much as 10.1%, Ethereum was up 9.6%, Dogecoin popped 7.9%, and Solana rose 13.3%.
Image source: Getty Images.
So what
Over the weekend, a deal was struck to avoid reaching the debt ceiling in the U.S., which could have caused defaults on hundreds of billions of dollars in debt starting as early as this week.
To be clear, the bill is not yet law. The text of the bill was just released on Sunday night and lawmakers will need to vote on it this week. But market makers certainly expect it to pass. There will be some caps on discretionary spending and clawbacks of unspent COVID-19 funding as part of the bill, indicating there was some give and take to get a compromise done.
The market's focus now moves to interest rates, which have been climbing for over a year. There's hope from investors that slowing inflation will mean a stop or even reversal of interest rate increases. That may be wishful thinking, but it's what traders are hoping for right now.
Now what
There wasn't any really fundamental news about cryptocurrencies this week, so the move is really a trading phenomenon of the financial markets. What's odd is that crypto values are rising as the stability of the U.S. dollar improves. Crypto, and Bitcoin specifically, was supposed to be the anti-establishment currency, but prices react positively when the current system stays stable.
We have also seen crypto trade higher along with growth stocks this year, continuing the correlation between the two that began in late 2021.
I think the more important thing to watch than interest rates is U.S. regulators and the 2024 election. Crypto could become even more of a target for some regulators in the next year, and on the same token, if there's a change in leadership to a more crypto-friendly President of the United States or Congress that could boost crypto values. But right now, it seems like the government is squeezing crypto as hard as possible. This will make it harder for developers to build on blockchains like Ethereum and Solana, which are made for utility and not just as stores of value.
As much as I think the debt deal is a positive for the economy and markets overall, I don't see them having much real-world impact on crypto. In fact, stability in the U.S. isn't doing any favors to those trying to build a new financial structure, so this is a bounce I'm not buying into today.
