The price of Bitcoin ( BTC ) fell in the week ending Sunday, as bond yields increased and U.S. Dollar liquidity decreased.

According to TradingView and CoinDesk, the yield on 10-year U.S. Treasury notes rose by six basis points to 3.58%, its second-straight weekly gain. The yield on 10-year U.S. Treasury notes rose by six basis point to 3.58%. This is its second consecutive weekly gain. Denting , the appeal of risky investments, including cryptocurrency.

TradingView data shows that the USD Liquidity Conditions Index (an indicator of the supply of the dollar in the monetary market) fell to $6.13 trillion. This is the lowest level in more than a month. The traders also priced in a greater probability that the Federal Reserve would continue its tightening cycle by raising rates 25 basis points in May.

Since 2021, the dollar liquidity index has closely tracked the peaks and valleys of bitcoin and the wider cryptocurrency market. Bitcoin rose to 28,000 dollars in the first six months of March, as the Fed opened liquidation taps for the banking crisis. This pushed the dollar liquidity index up to $6.35 trillion.

The situation has changed.

Noelle Acheson wrote in the weekend issue of the newsletter that “in the absence of encouraging signals on the monetary liquidty front, BTC has continued to drift downward over the past week, after its sharp fall on Monday. It also dragged other large-cap cryptoassets with it.”

Acheson said that “BTC, while an asset of ‘insurance’ which should perform better when other asset classes are underperforming, is still heavily affected by the macro-mood. This will be largely driven by monetary liquid expectations.”

According to Dessislava Lavnev, a macro-analyst at Paris-based Kaiko, the U.S. Debt Ceiling issue may cause increased price volatility in the short term for bitcoin and financial markets.

These measures also boosted the dollar liquidity a href=”https://www.coindesk.com/markets/2023/01/18/as-us-debt-ceiling-nears-crypto-observers-maintain-risk-on-bias/” rel=”noopener” target=”_blank”>and kept/a> risky assets bid. These measures also increased the dollar liquidity , and kept-risky assets at a bid.

Since then, debt ceiling negotiations are in a stalemate. According to the Wall Street Journal, the price of one-year credit derivatives, which measures the cost to insure against government defaults in the coming 12 months, reached a record level last week.

Current CDS pricing shows a 2% chance of default. Andy Sparks of New York’s MSCI told The Journal that this is a high price for something which could cause a financial catastrophe.

Observers worry that the Treasury will run out of funds by June.

Laneva, a CoinDesk reporter, said that “the debt ceiling drama” is a short-term source of volatility and uncertainty in the market.

Bitcoin is seen by many as a high-risk asset. If equities start to scream, it may be sold. Risky assets suffered a blow during the 2011 Debt-ceiling Drama, when Washington’s deadlock led to the loss of the country’s top-notch triple A sovereign credit rating.

This situation could lead the Fed to lower rates and benefit risk assets, Laneva added.

According to Tom Dunleavy of macro analyst, a possible default could see bitcoin gain a haven bid as it did in the recent banking crises in March.

“I do not believe that the United States will default.” Dunleavy stated that he believes the debt ceiling issue will be resolved well before this happens. If the U.S. defaults or we reach the deadline without an agreement, this should be a positive development for BTC. With the recent bank failures, we’ve seen BTC’s story of being a store of value become more solidified. BTC’s relationship with gold is at an all-time high.”

(13:33 UTC: Tom Dunleavy, private macro analyst no longer employed by Messari

Parikshit Miishra is the editor.