US credit tightening pressure mounts… Bitcoin correction likely to be prolonged

As signs emerge that US credit conditions are tightening rapidly, analysts say it will be difficult for Bitcoin’s correction phase to conclude in the near term. The view is that the timing of a rebound could be pushed back, given that in past episodes Bitcoin tended to form a bottom only after stress in credit markets began to intensify.

According to Cointelegraph on the 3rd (local time), Bitcoin fell intraday to below $73,000, marking its lowest level of the year. As volatility increases, US macro indicators are simultaneously signaling that tightening pressure in credit markets is building.

The market is closely watching the ICE BofA US Corporate Option-Adjusted Spread (OAS) as a key indicator. The metric represents the extra yield investors demand to hold corporate bonds over US Treasuries; in general, a widening spread indicates heightened risk aversion in credit markets. The figure currently stands at 0.75, remaining at its lowest level since 1998.

This compression in credit spreads is seen as being at odds with the US fiscal backdrop. US government debt reached $38.5 trillion as of the end of January, and the 10-year US Treasury yield rose again to around 4.28%. The assessment is that credit risk is not being sufficiently priced in while borrowing costs remain elevated.

Looking at past Bitcoin cycles, a recurring pattern has been that local bottoms formed with a lag of roughly three to six months after credit spreads began to widen. Since Bitcoin corrections in 2018, 2020 and 2022 all ended only after credit-market tightening moved first, the current phase is also seen as likely to be prolonged.

On-chain indicators are showing both short-term selling pressure and signs of a slowdown in long-term selling. While whales and mid-term holders have recently stepped up moves to transfer Bitcoin to exchanges, the SOPR indicator fell to around 1, suggesting that long-term holders’ capacity for additional selling is diminishing. Some in the market also say that if rising US Treasury yields translate into greater pressure on credit markets, Bitcoin’s full-fledged accumulation window could be pushed into the second half of the year.