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**Key takeaways:**
 * Bitcoin recovered from its sharp sell-off from $107,000, suggesting it functions as a hedge against uncertainty for investors reacting to Moody&#8217;s recent downgrade of US debt.
 * Moody&#8217;s downgraded the US credit rating to Aa1, citing a $36 trillion debt and rising deficits, causing market turbulence and a spike in US Treasury yields.
 * Despite short-term pressure from macroeconomic shifts, Bitcoin&#8217;s long-term outlook remains bullish due to cautious shorting and a weakening US dollar.
Bitcoin (BTC) price faced a sharp 4% correction during the Asian trading 
session on May 19, tumbling from an &#8220;important level&#8221; as noted by Glassnode. 
The data analytics platform indicated that Bitcoin&#8217;s surge stalled just below 
$106,600, a critical level where 31,000 BTC are held. This supply cluster, 
formed on Dec. 16, 2024, reflects firm holder conviction, as investors have 
neither sold nor averaged down despite price fluctuations.
_Bitcoin price cost basis chart. Source: Glassnode_
The BTC price drop occurred after macroeconomic headwinds intensified, with a 
historic downgrade of the US credit rating by Moody&#8217;s and a rise in US 
Treasury yields, raising speculation around risk assets such as Bitcoin&#8217;s 
near-term trajectory.
## Moody&#8217;s US credit downgrade spooks markets
After the US markets closed on May 16, Moody&#8217;s Investors Service downgraded 
the US credit rating from Aaa to Aa1, marking the first downgrade in modern 
history. Moody&#8217;s cited concerns over the US&#8217;s ballooning $36 trillion debt 
pile, with federal deficits projected to reach 9% of GDP by 2035, up from 6.4% 
in 2024.
Interest payments on US debt are expected to consume 30% of federal revenue by 
2035, a significant rise from 18%. Following similar actions by S&amp;P in 2011 
and Fitch in 2023, this downgrade underscores the unsustainable fiscal path of 
the US, rattling investor confidence and contributing to market turbulence.
_US 30Y treasury yields reached its highest level since Oct 2023. Source: 
Cointelegraph/TradingView_
The downgrade also coincided with a surge in US Treasury yields, further 
impacting markets. The 10-year Treasury yield opened at 5.53% post-downgrade 
on May 19, while the 30-year yield followed a similar upward trend, currently 
at 4.98%, reflecting investor concerns over higher borrowing costs for the US 
government.
The Kobeissi newsletter highlighted that historically, past downgrades led to 
mixed yield reactions&#8211;yields fell 35% after the 2011 S&amp;P downgrade but rose 
23% after Fitch&#8217;s 2023 downgrade. This time, the yield spike mirrors the 2023 
pattern, signaling fears of inflation and fiscal strain, which likely 
contributed to Bitcoin&#8217;s price correction as investors sought safer assets.
_**Related: Bitcoin bulls should &#8216;be careful with longs&#8217; as BTC price risks 
$100K breakdown**_
## Will short-term pain shift to long-term gain for Bitcoin?
Bitcoin&#8217;s price dump on May 19 reflects its sensitivity to macroeconomic 
shifts. Bitcoin could face continued pressure in the short term as investors 
pivot to safer assets amid rising uncertainty and borrowing costs.
However, Bitcoin researcher Axel Adler Jr. on X highlighted a shift in market 
sentiment, noting that traders betting on price declines have been 
&#8220;significantly more cautious&#8221; in building short positions during this bull 
cycle compared to 2021. This suggests a generally bullish long-term outlook, 
as bears grow risk-averse.
_Bitcoin Advanced Short/Long signals. Source: X.com_
Historically, Bitcoin has served as a safe haven during economic turmoil, such 
as the COVID-19 crisis, and could benefit long-term from eroding trust in fiat 
systems, especially with the US fiscal outlook deteriorating.
The US Dollar Index (DXY) is signaling a potential decline below $100, 
reflecting a weakening dollar that has triggered a classic &#8220;risk-off&#8221; 
response. This shift has reignited interest in gold, which saw a modest 0.4% 
increase, though broader market reactions remain subdued. Typically, a weaker 
dollar bolsters risk assets like Bitcoin, as investors seek alternative stores 
of value. Adler Jr said,
&gt; &#8220;Overall, despite the prevailing &#8220;risk-off&#8221; sentiment (typically a headwind 
&gt; for high-volatility assets), Bitcoin may find itself in a relatively 
&gt; stronger position in the current environment due to its &#8220;digital gold&#8221; 
&gt; narrative and the supportive effect of a weaker dollar.&#8221;
_**Related: $107K fakeout or new all-time highs? 5 things to know in Bitcoin 
this week**_
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.

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