Bitcoin Is Likely To Take a Significant Leg Downwards as the Crypto Sector Becomes a Punching Bag in the Ongoing US Debt Ceiling Drama

Throughout much of the malaise that the risky asset universe suffered last year, Bitcoin bulls had pinned their hopes on a broad-based rally in US equities to offer deliverance from the bear market purgatory. However, even though the Nasdaq 100 index continues to soar, egged on by the AI-related euphoria that has captured the imagination of investors, Bitcoin is lagging far behind. To further aggravate matters, with the world’s largest cryptocurrency by market capitalization now becoming a punching bag for policymakers in Washington DC, the chances of a significant downward price correction have increased materially.

As can be seen in the snippet above, Bitcoin’s correlation with the S&P 500 index has utterly collapsed, with just around 20 percent of the premier cryptocurrency’s price moves explained by the corresponding moves in the S&P 500 index. For reference, back in May 2022, this metric was hovering at a whopping 75 percent.

Currently, Bitcoin is perched at its 200-week moving average. This indicator continues to serve as a significant support/resistance level for the world’s premier cryptocurrency.

However, there are increasing signs that a downward thrust remains imminent. First, as shown in the above chart, Bitcoin’s daily RSI is firmly lodged within a downward channel.

Moreover, according to Rekt Capital, Bitcoin has fully confirmed the $27,600 price level as a resistance and is “positioned for downside.” The analyst notes:

“[The] only thing missing at this point is sell-side volume to prompt deeper downside.”

This sell-side volume is now likely to appear as a result of political shenanigans in Washington DC. As a refresher, the US is expected to reach the so-called X date in early June, after which the US Treasury’s ability to service the country’s debt is likely to become impaired, at least for a short while. To avoid the threat of a possible default, US lawmakers have to raise the statutory debt ceiling. This legislation, however, has predictably become a battleground for political brinkmanship, with the Republicans calling for a curtailment in federal expenditure while the Democrats are looking to raise taxes.

Moreover, the crypto sector, in general, and Bitcoin, in particular, has become a divisive topic at the Capitol, with the Biden administration seeking to impose a 30 percent consumption tax on Bitcoin miners as part of the debt ceiling legislation process. Bear in mind that such a move would likely cripple Bitcoin mining in the US, where the crypto firms are already reeling from the SEC’s newfound penchant to regulate via enforcement actions.

Meanwhile, in a move that is likely to increase Bitcoin’s volatility, the CME is all set to add ultra-short-dated or 0DTE options contract for the world’s largest cryptocurrency by market capitalization.

We had noted in a previous post that Bitcoin has now exited its macro downtrend. This, however, does not preclude major price corrections. Even so, the premier cryptocurrency is expected to embark on a sustained bull run ahead of the next halving event, currently scheduled for H1 2024.

About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.

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