Anndy Lian
While stocks stay calm, Bitcoin rockets to US$105K after downgrade
Last Friday, Moody’s decision to downgrade the US credit rating from its pristine Aaa status to Aa1 sent a jolt through global financial markets, stirring a wave of subdued risk sentiment that lingered into the new week. The downgrade, rooted in concerns over the United States’ mounting debt burden and the rising cost of servicing it, marked a rare moment of scrutiny for the world’s largest economy.
Moody’s pointed to a debt-to-GDP ratio spiralling toward 134 per cent by 2035 and persistent fiscal deficits as key drivers behind the move—a sobering assessment that echoed earlier downgrades by Fitch and S&P in recent years. For a nation long regarded as the bedrock of global financial stability, this shift might have been expected to unleash chaos across asset classes. Yet, as Monday’s trading session unfolded, the response was anything but panicked. US equities, after stumbling out of the gate, clawed back early losses to close modestly higher.
The S&P 500 eked out a 0.1 per cent gain, the Dow Jones rose 0.3 per cent, and the Nasdaq edged up by 0.1 per cent. This resilience hinted at a market more preoccupied with immediate economic signals than long-term fiscal warnings, a sentiment reinforced by Federal Reserve officials who doubled down on their patient, wait-and-see stance. With no policy shifts anticipated before September, the Fed’s measured tone seemed to steady investors’ nerves, suggesting that the downgrade, while noteworthy, wasn’t yet a tipping point for broader market upheaval.
The bond market, too, offered a nuanced reaction to Moody’s announcement. US Treasuries, often the first port of call in times of uncertainty, initially faltered as the downgrade sparked a brief sell-off. Yields ticked higher, with the 30-year Treasury yield briefly piercing the five per cent mark—the highest since November 2023—before retreating to close at 4.903 per cent, down 4.1 basis points.
The 10-year yield followed a similar arc, slipping 3.0 basis points to settle at 4.447 per cent. This recovery signalled that, despite the downgrade, investors weren’t ready to abandon US debt as a safe haven. The enduring appeal of Treasuries likely stems from their unparalleled liquidity and the dollar’s status as the world’s reserve currency, factors that continue to outweigh concerns about America’s fiscal trajectory.
Meanwhile, the US Dollar Index took a modest hit, dipping 0.7 per cent to 100.43, a move that might reflect some unease about the downgrade but hardly a flight from the greenback. Gold, ever the barometer of uncertainty, rebounded with a 0.8 per cent gain to US$3,230 per ounce, reinforcing its role as a hedge against perceived cracks in the global financial edifice.
Across the commodity spectrum, Brent crude inched up 0.2 per cent to US$66 per barrel, buoyed not by the US downgrade but by geopolitical currents—namely, tentative truce talks between Russia and Ukraine and whispers of a nuclear deal with Iran. These movements painted a picture of a market absorbing the Moody’s news with a shrug, focusing instead on near-term catalysts and broader macro trends.
Elsewhere, Asian markets offered a contrast to the relative calm in the US. The MSCI Asia ex-Japan index slid 0.66 per cent on Monday, dragged lower by a faltering Chinese equity market. Concerns over weakening consumption in China, coupled with the much-anticipated debut of a major battery manufacturer, weighed heavily on sentiment. This divergence underscored a key dynamic: while the US downgrade rippled globally, regional factors often held greater sway over local markets.
Early trading in Asia on Tuesday showed a mixed picture, with no clear direction emerging, while US equity index futures pointed to a softer open stateside. The muted response across these asset classes suggested that, for now, the downgrade was being filed away as a long-term concern rather than an immediate threat. Investors seemed more attuned to the Federal Reserve’s next moves, inflationary pressures, and geopolitical developments than to Moody’s stern warning about America’s fiscal health.
Amid this complex tapestry of market reactions, Bitcoin emerged as a standout story, surging past the US$105,000 mark over the weekend and igniting a US$250 billion rally across the cryptocurrency universe. By Sunday, Bitcoin’s price had climbed to US$105,424.45, pushing its market capitalisation beyond US$2.05 trillion and lifting the broader crypto market’s total value past US$2.65 trillion in just five trading days.
This 37.5 per cent ascent from its April low of under US$75,000 was no fluke; it was fuelled by a potent mix of macroeconomic tailwinds and shifting investor psychology. Inflation data, which has kept markets on edge, bolstered Bitcoin’s appeal as an inflation hedge—a narrative that gained traction as confidence grew in potential interest rate cuts from the Federal Reserve.
Significant fund inflows from retail enthusiasts and institutional heavyweights poured fuel on the fire, driving Bitcoin’s dominance in the crypto space to 53.2 per cent, its highest level in over three years. Altcoins rode the wave, buoyed by Bitcoin’s momentum and a technical breakout that saw the cryptocurrency shatter key resistance levels. Open interest in Bitcoin futures soared to a record US$36 billion, a clear sign of growing trader conviction and speculative fervour.
What makes Bitcoin’s rally particularly striking is its timing alongside the Moody’s downgrade. While traditional markets digested the downgrade with relative composure, the crypto market’s exuberance suggested a deeper shift in investor behavior. For some, Bitcoin is increasingly seen as a counterweight to the uncertainties plaguing sovereign debt and fiat currencies, precisely the uncertainties Moody’s highlighted in its downgrade rationale.
The cryptocurrency’s rise wasn’t just a technical story; it was a macroeconomic one, amplified by positive conditions like regulatory clarity in major markets and a growing acceptance among traditional financial players. Take JPMorgan Chase, for instance. On Monday, CEO Jamie Dimon announced at the bank’s annual investor day that clients would now have access to Bitcoin, a surprising pivot for a man who once vowed to shut down the crypto industry if he could.
Dimon, a vocal skeptic who has long flagged concerns about money laundering and illicit activities tied to digital currencies, framed the move as a reluctant nod to client demand. “I don’t think you should smoke, but I defend your right to smoke,” he quipped, per CNBC’s report. “I defend your right to buy Bitcoin.” JPMorgan won’t custody or endorse the asset, but its decision to facilitate access marks a watershed moment, bridging the gap between Wall Street and the crypto frontier.
This juxtaposition—Moody’s downgrade on one hand, Bitcoin’s ascent on the other—offers a lens into the evolving financial landscape. The downgrade’s tepid impact on equities and Treasuries suggests that traditional markets remain anchored by faith in the US economy’s resilience, bolstered by the Fed’s steady hand. Yet Bitcoin’s surge hints at a parallel narrative: a growing cohort of investors, from retail traders to institutions, is seeking alternatives to the established order.
The crypto rally, underpinned by inflation fears and low-rate expectations, reflects a bet on a future where digital assets play a bigger role in hedging against fiscal and monetary instability. Gold’s rebound fits into this story too, though its gains pale beside Bitcoin’s meteoric rise. Meanwhile, the mixed performance in Asian markets and Brent crude’s modest uptick remind us that global markets are a mosaic, shaped as much by local dynamics as by headline events like a US credit downgrade.
In the end, the past few days have revealed a market at a crossroads. While significant, the Moody’s downgrade didn’t spark the turmoil one might expect, suggesting that investors are either desensitised to such warnings or too focused on shorter-term horizons to care. US equities and Treasuries held firm, the dollar dipped but didn’t collapse, and gold reclaimed some ground.
Bitcoin, however, stole the spotlight, and its surge is a testament to shifting tides in how value is perceived and stored. Whether this marks a fleeting speculative boom or a lasting realignment remains to be seen, but one thing is clear: the financial world is growing more complex, with traditional and alternative assets increasingly dancing to different tunes.
As the Fed holds its ground and geopolitical currents swirl, the interplay between these forces will shape markets for months to come. For now, the Moody’s downgrade is a footnote in a broader story—one where resilience, innovation, and uncertainty coexist in uneasy harmony.
Source: https://e27.co/while-stocks-stay-calm-bitcoin-rockets-to-us105k-after-downgrade-20250520/
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