​Citigroup announces a possible drop in the bitcoin rate below $25 000

What’s new? Strategists at financial conglomerate Citigroup believe that holders of risky assets such as cryptocurrencies could face new problems. Despite progress on a deal to raise the US government debt ceiling, the Treasury Department will seek to rebuild its depleted cash balance through alleged $1 trillion bills to deluge the market. The impending reduction in reserves as the Treasury’s general account is rebuilt could hamper the growth of the crypto market, according to a note from Citigroup.

Material on the Bloomberg website

Citigroup is on the list of systemically important banks. It launched a crypto unit in November 2021 to serve institutional clients. In 2022, it was ranked 27th on the Forbes Global 2000 list of the largest public companies. Citigroup has $2,417 trillion in assets under management.

Experts’ prediction. Citi analyzed risky assets during drawdowns and found that they are subject to higher volatility and weaker returns. In these scenarios, both bitcoin and Ethereum have negative returns on average, and BTC lags far behind in median performance.

The US Treasury General Account (TGA) decreased significantly during the pandemic. As a result, the agency will need to replenish its dwindling cash reserves to maintain its ability to pay its obligations on bills, which are estimated to be $1 trillion by the end of Q3.

This surge in supply could lead to liquidity outflows from the banking sector and higher short-term funding rates amid a possible plunge in the economy into recession.

Analysts stress that this scenario does not bode well for crypto investors, who have only just recovered from fears of a deal to raise the government debt ceiling. Economists polled by CoinDesk earlier voiced similar predictions.

Analysts point to a possible liquidity crisis of the crypto market

Negative consequences could occur if the US debt ceiling is raised

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“Crypto markets were not immune to fears of the US defaulting on its debt, selling off on negative developments and rallying on headlines suggesting progress,” Citi noted, adding that cryptocurrencies typically “fared well” in the face of problems with traditional banking institutions.

However, the possible risk of a default by an institution such as the US government “doesn’t paint a favorable outlook for decentralized digital assets,” given that the crypto industry is still in its infancy and regulation has yet to be determined.

According to Fiona Cincotta, senior market analyst at City Index, support for bitcoin is currently around $26 500, and a break below $25 000 could mean a bigger drop in the rate. The main problem, she says, is the uncertain macroeconomic backdrop due to recession fears. Cincotta believes that bitcoin will only get a boost if the US Federal Reserve System (Fed) eases monetary policy by stopping rate hikes.

As of June 5, 13:20 UTC, BTC to USDT is trading at $26 706 on the Binance exchange, having lost 1,93% in 24 hours. The asset has a capitalization of $517,83 billion and a market share of 45,8%.

Earlier, macro investor Dan Tapiero said that the crypto market is out of a bear cycle and an “explosive” bull phase awaits it. According to his prediction, digital assets will reach new highs in the second half of 2024, or by 2025, resulting in the capitalization of the crypto market will reach $ 6-8 trillion.

And in February, Citigroup analysts stated the stability of the cryptocurrency market, despite the weakening of the stock market and increased activity of regulators. Analysts also noted a decrease in the correlation of cryptocurrencies with the stock market.