Major cryptocurrencies dip as market sentiment turns risk-averse

Crypto Markets React to U.S. Credit Rating Downgrade

The cryptocurrency market saw a broad pullback over the weekend after Moody’s Investors Service downgraded the United States’ sovereign credit rating. Key digital assets such as Ether (ETH), XRP, and Dogecoin (DOGE) dropped by around 3%, reflecting a wider decline in risk assets.

The overall crypto market capitalisation, which had briefly touched a weekly high, retreated to approximately $3.3 trillion. The decline came as investor sentiment turned cautious amid renewed concerns over the U.S. government’s financial outlook.

Moody’s Cuts U.S. Rating to Aa1
Moody’s lowered the U.S. credit rating from Aaa to Aa1, citing rising fiscal deficits, growing interest expenses, and an absence of effective political measures to manage national debt. The downgrade marks the first cut from Moody’s in over a decade and aligns the agency with previous actions taken by Fitch and S&P, both of which had already moved the U.S. below its historic triple-A rating.

“The downgrade reflects the growing strain on the country’s finances and the lack of a coherent plan to address the rising debt burden,” Moody’s said in its official statement.

The White House responded swiftly, with representatives for former President Donald Trump labelling the downgrade as politically driven and unjustified.

Impact on Traditional Financial Markets
The downgrade triggered a visible reaction in conventional markets. Yields on U.S. Treasury bonds rose, with the benchmark 10-year note climbing to 4.49%. At the same time, S&P 500 futures fell by 0.6% during after-hours trading, indicating a broader sense of market unease.

Historically, fiscal concerns and fears of dollar debasement have sometimes benefited decentralised assets like Bitcoin. However, in the short term, such events often lead to “risk-off” behaviour, where institutional and retail investors reduce exposure to volatile or speculative assets, including cryptocurrencies.

Bitcoin Holds Ground but Analysts Warn of Near-Term Pressure
Despite the broader market downturn, Bitcoin managed to hold the key $104,000 support level, offering some hope for stability. Analysts, however, remain cautious.

“Bitcoin is holding the $104,000 mark as a key level and the positive factor is that sellers have not yet managed to seize control of the market,” said Alex Kuptsikevich, chief market analyst at FxPro, in an emailed note.

He added that the current resilience may be temporary: “There is considerable pressure near the upper boundary of the current range. The short-term outlook suggests a decline from current levels.”

Some market participants are anticipating further pullbacks, especially as traders lock in profits from the recent rally and reassess macroeconomic risks.

Risk Sentiment and the Road Ahead
The crypto market’s immediate reaction underscores the fragile balance between bullish optimism and global economic uncertainty. While long-term believers in digital assets may view these downgrades as a sign of fiat instability, short-term volatility remains a reality as institutional capital continues to weigh risks.

For now, the combination of rising government debt, higher interest rates, and political deadlock appears to be setting the tone across financial markets. As traders await further signals—particularly from central banks and upcoming economic data—volatility is expected to remain elevated.