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The main cryptocurrencies are facing persistent pressure this month, even as gold and silver rally.
These divergent trends reflect unique risks for digital assets, as growing concerns about government stability propel precious metals higher, highlighting a strengthening of investor confidence in traditional safe havens.
This month, bitcoin the largest cryptocurrency by market value, has plunged more than 9%, falling below the critical support level on the chain of $100,000, CoinDesk data shows. This weakness has spread to the broader crypto market, wiping out major tokens such as Ethereum’s ether. solana and from 11% to 20%. Payments-focused XRP has shown relative resilience, declining just over 7%.
The weak tone comes despite the rally in the dollar index (DXY) losing momentum after encountering resistance above 100 earlier this month. Typically, a fading DXY – which measures the US dollar against a basket of global currencies – bodes well for bitcoin and the broader crypto market, as well as precious metals.
However, while bitcoin remains subdued, precious metals have found strength; gold and silver have climbed 4% and 9%, respectively, this month. Less-tracked precious metals such as palladium and platinum also saw gains of more than 1%.
So, what stops bitcoin? According to Greg Magadini, director of derivatives at Amberdata, most of the bullish news has already been priced in, leaving BTC vulnerable to bearish developments.
“After the government shutdown, risk assets are sold as all ‘good news’ catalysts have been used. Fed easing via FOMC, China/US trade cooperation, and a government shutdown now resolved,” Magadini told CoinDesk.
“Bitcoin traders were positioned bullishly given a strong fundamental backdrop for an EOY rally, but the positioning is likely to be off as the market was over-positioned long with no one to buy later,” he added.
Beyond positioning, fears of a deeper systemic risk also weigh heavily on cryptocurrencies, Magadini explained, highlighting a potential credit freeze as a major risk for digital asset treasurers (DAT).
These entities have been a significant source of upward pressure for cryptocurrencies over the past year, relying heavily on credit markets to finance their crypto purchases, often through convertible bonds and debt issues. However, DATs are not alone in this competition for capital; It faces increasing pressure as sovereign governments and AI-related companies vie for the same limited credit pools.
With the recent surge in the formation of DAT, the demand for credit has grown substantially, Magadini noted, adding that if the credit markets tighten or freeze, these companies may struggle to refinance their obligations, forcing them to sell their coins to meet debt payments. This forced sale could trigger a cascade, as subsequent DATs could also be pressured to liquidate their assets.
“As the crypto is sold, the next tranche of DAT could be forced to sell as well (like this and so on). Although it is less pronounced with quality assets (such as BTC), the risk of a downward spiral increases for DATs who have recently acquired volatile altcoins at the peak of valuation,” said Magadini.
“Today the market is probably thinking about this type of credit risk,” he said. (The DATs are already facing the heat in the Far East.)
Explain the rise of gold
Precious metals gained ground mainly due to growing concerns about the fiscal health of major economies, including the United States.
The fiscal strain is evident in the government debt-to-GDP ratios of many advanced economies. For example, the ratio of Japan exceeds 220%, while the United States is above 120%. France and Italy also carry substantial debt loads, above 110%. While the Chinese government’s debt to GDP is below 100%, its total non-financial debt exceeds 300% of GDP, making it one of the most indebted countries in the world.
The problem is particularly acute in the Eurozone, according to Robin Brooks, senior fellow in the Global Economy and Development program at the Brookings Institution.
“The rally of precious metals is not about a flight out of USD. It is a symptom of the deeply broken fiscal policy, which is true in the world, especially in the Eurozone, where high debt countries control the ECB.” Brooks said on X.
Interestingly, gold has a history of BTC price movements. Analysis by market experts indicates that BTC tends to lag gold by about 80 days, suggesting that once the rally in the yellow metal eventually stops, the cryptocurrency may receive a strong bid.
Whether this model holds up in the current macroeconomic environment remains to be seen.
