Right as analysts thought that Bitcoin (BTC) was on the cusp of showing signs of a price breakout, the crypto market took a turn to the downside amid increased regulatory uncertainty. Now it seems BTC is stuck far below the $28,000 resistance level. 

Bitcoin price hit a 30-day low on May 24 at $26,113 as traders worry that a larger price dip is possible, noting that the 5% 24-hour drop is a key moment of truth for the crypto market.

Similar worries exist for Ether (ETH) which traded above the $2,100 level after the Shapella upgrade only to be followed by a 7-day low of $1,783 on May 24. The downturn comes as Ether remains pinned below $1,900 resistance with data showing an upward trend is unlikely in the short-term.

Cryptocurrency market performance, 1-day chart: Coin360

Related: Ordinals turned Bitcoin into a worse version of Ethereum: Can we fix it?

Concerns over the debt ceiling weigh on risk assets

While some analysts believe Bitcoin could see inflow in the event that the United States defaults on its debt, there is a significant risk that the U.S. Treasury will run out of funds, straining liquidity. 

To date, crypto prices are still highly correlated with the Dow and S&P 500 and most major banks still expect the U.S. to experience a sharp recession at some point in 2023.

According to U.S. Bank analysis which incorporates more than 1,000 data points, investor sentiment about the current state of the economy remains low.

Global economic health. Source: U.S. Bank

According to U.S. Bank analysis, 

“Our U.S. Health Check is at levels consistent with historical recessions as the Federal Reserve continues tightening monetary policy to combat elevated inflation.”

Lido unlock adds pressure to the crypto market

Despite the capital acquisition and debt management challenges high-interest rates are causing banks, Federal Reserve chair Jerome Powell seems committed to reducing inflation through further hikes.

After Powell’s Federal Open Markets Committee (FOMC) speech on May 4, the market seemed to confidently believe that the Fed would pause rate hikes. CME’s FedWatch tool shows an increasing possibility that a rate hike still may happen. The 34% that believe a new interesting rate hike is incoming is up from 28% on May 17. Some Bitcoin analysts believe two more rate hikes will happen, creating immense volatility.

Target interest rate probabilities. Source: CME Group

The next FOMC meeting is scheduled for June 14, 2023. 

TVL and volume remain low

The total value locked metric (TVL) is a common way to examine the health and sentiment of the crypto markets. According to DeFiLlama, TVL across all protocols dropped 1.65% in the past 24-hours and shed $23 billion since June 12, 2022. 

Ethereum ecosystem total value locked. Source: DeFiLlama

Related: $160K at next halving? Model counts down to new Bitcoin all-time high

Trading volume also remains muted. After trading volume reached a year-to-date high on March 11 of $24.9 billion, trading volume on May 23 was only $2.3 billion.

With heavy macro headwinds and low volume, it is likely the volatility in crypto will remain.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.