Bitcoin and most major altcoins have lost ground this week, extending their corrections from recent highs. The main driver behind the latest weakness is the uncertainty regarding the debt-ceiling negotiations in the US, while solid macroeconomic data releases have increased bets for further rate hikes by the Fed. Is the 2023 crypto rally starting to fizzle out?

US default risk looms

The latest decline in crypto prices is not attributed to systemic woes or idiosyncratic risks, but largely stems from the US debt ceiling crisis. Even though this is more of an artificial crisis as the US government has always come up with a resolution whenever this event occurred in the past, the heightened uncertainty has been enough to drain liquidity from risky assets such as stocks and cryptos.

Besides the immediate impact, the looming fears of a US default have sent US Treasury yields higher, boosting the US dollar which has also been attracting some safe-haven flows. Of course, the strengthening greenback applies downward pressures on cryptos and acts as an additional headwind.

Much of the negativity has been reflected in the famous Bitcoin Fear and Greed index, which is standing below its 50-neutral mark on Friday. The latest developments are reinforcing the view that digital coins are risk-sensitive assets as they failed once more to provide protection in turbulent times.

For the past couple of weeks, markets have been revolving around two major themes, the debt ceiling crisis and the Fed’s interest rate pathway. Last week, Fed Chair Jerome Powell joined the doves’ camp for the first time, opening the door for a pause in the next meeting. Nevertheless, during this week, some unexpectedly strong GDP and employment data coupled with inflationary pressures not subsiding at the anticipated pace have triggered bets that the Fed is likely to deliver another 25 basis points hike before pausing.

Although interest rates are expected to climb a little bit more and rate cuts have been pushed further into the future, stocks continue to gain ground in contrast to what cryptos have been doing lately. So, why is the correlation between stocks and cryptos weakening? A potential reason is that the latest rally in equity space is attributed to the AI frenzy, which has nothing to do with either digital coins or the broader macroeconomic backdrop.

Technical levels gain importance

In recent weeks, moves in crypto prices have been mostly driven by external forces. Hence, investors should pay more focus on the technical picture to exploit any potential opportunities that could arise. So, taking a technical look at BTCUSD, we can see that the price remains rangebound after its decline paused at a fresh two-month low of $25,785.

If the price extends its short-term slide below the two-month low, the bears could aim at the $25,250 resistance, which could serve as support in the future. A violation of that zone could pave the way for the $21,375 hurdle.

Alternatively, bullish forces could propel the king of cryptos towards $27,500, which has repeatedly capped the price’s upside in the past two weeks. If that barricade fails, the spotlight could turn to the $30,000 psychological mark.