Cryptocurrencies Rebound 0.4% After Moody's Downgrade

Cryptocurrencies experienced a recovery on Monday, following a volatile start to the trading session. This rebound mirrored a broader recovery in risk assets as traders responded to Moody’s downgrade of U.S. government bonds. Bitcoin, the largest cryptocurrency by market cap, saw a significant rebound after dropping to as low as $102,000 early in the U.S. session. It climbed back to $105,000 in afternoon trading, marking a 0.4% increase over 24 hours. Ether also rose by 1.2%, reclaiming the $2,500 level.

DeFi lending platform Aave outperformed most large-cap altcoins, while the majority of the broad-market CoinDesk 20 Index members remained in the red despite advancing from their daily lows. Solana, Avalanche, and Polkadot were down by 2%-3%. The bounce extended to U.S. stocks, with the S&P 500 and Nasdaq erasing their morning decline. The early pullback in crypto and stocks came after Moody’s late Friday downgraded the U.S. credit rating from its AAA status. This move rattled bond markets, pushing 30-year Treasury yields above 5% and the 10-year note to over 4.5%.

Some analysts downplayed the downgrade's long-term impact on asset prices. Ram Ahluwalia, CEO of a wealth management firm, stated that the downgrade would have minimal long-term effects on markets. He noted that there might be short-term selling pressure centered on U.S. Treasuries due to large institutional investors rebalancing their portfolios. Callie Cox, chief market strategist at a wealth management firm, also commented that the downgrade was expected and not a surprise, which is why stock investors did not seem to be concerned.

Despite the volatility, Bitcoin remains close to its January record prices. Digital asset ETF issuer 21Shares sees further upside for Bitcoin this year. According to a report by research strategist Matt Mena, Bitcoin's current rally is driven by institutional inflows, a historic supply crunch, and improving macro conditions. These factors suggest a more durable and mature path to fresh all-time highs. Spot Bitcoin ETFs have consistently absorbed more BTC than is mined daily, tightening supply while major institutions, corporations, and even states explore creating strategic reserves. These combined factors could lift BTC to $138,500 this year, according to the analyst's forecast, translating to a roughly 35% rally for the largest crypto.