Rating Rumble

On Tuesday, in a dramatic and unexpected move, renowned rating entity Fitch made the decision to downgrade the U.S. government’s supreme credit rating. The U.S. was demoted to an AA+ status from its previously pristine AAA rating. The downgrade was driven by the projected fiscal decline over the coming three years, and the now-recurring last-minute debt ceiling negotiations that jeopardise the government’s capacity to service its obligations. This bold move provoked a swift and harsh retort from the White House and surprised the investment community, given that it came on the heels of the resolution of the contentious debt ceiling crisis just two months prior. As a result, market participants promptly adjusted their strategies, seeking shelter from potential fallout. This prompted a pivot away from equities and toward more traditionally safe investment assets like government bonds and the U.S. dollar.

In more crypto-specific news, Curve, a major DeFi protocol that conducts automated market making and is widely adopted in the industry, suffered a significant breach during late hours this past Sunday as several of the platform’s stablecoin pools were exploited by hackers. Following the breach, it was revealed that Curve’s founder had an outstanding $80M loan secured by $CRV, the protocol’s native token. Given that the exploit triggered a significant depreciation in $CRV’s price, the total dollar value of the loan collateral dipped, thereby placing the loan on the brink of liquidation. The potential liquidation of this loan could lead to the sale of the posted collateral on the open market, triggering a domino effect of further liquidations. Consequently, the founder of Curve has been making frantic efforts to repay portions of the loan in an attempt to decrease his liquidation threshold and curtail any subsequent ramifications.

From a technical analysis viewpoint, recent weeks have witnessed a period of sideways movement in the markets, with Bitcoin oscillating within the confines of a $28,600 to $31,500 range. A break above this range could catapult Bitcoin to fresh annual peaks, while a downward breach would likely prompt a regression towards the $27K mark. Lending credence to a more optimistic scenario is one particular technical harbinger: the MACD (Moving Average Convergence Divergence), which appears on the cusp of a bullish cross over its signal line. The previous occurrence of such an event heralded a substantial uptick for Bitcoin, sending it soaring by over 20%.

This week’s financial landscape is marked by Fitch’s unforeseen downgrade of the U.S. credit rating which sent shockwaves through global markets. In parallel, the Bank of England’s interest rate hike brought with it both concerns and hopes, while Curve’s cyber breach put the cryptocurrency world on alert. Together, these events paint a vivid picture of a global economy in constant motion, filled with uncertainties, opportunities, and reminders that success in this intricate landscape requires constant vigilance.

View the chart on TradingView here.