Anushka Basu
2 min read
After Moody’s downgrade of the U.S. credit rating on May 17, Bitcoin and cryptocurrencies surged because investors are looking for an alternative to growing economic uncertainty.
After the report came out, Bitcoin is trading at $105,164.4 and now sits only 3.81% off of its all-time high, as per Kraken.
Analysts also believe the downgrade amid a weakening U.S. dollar also heightened the allure of Bitcoin and gold to rising fiscal fears. Moody’s spurred a similar downgrade when it moved the U.S. from its top AAA grade to AA1, and cited the government’s failure to rein in its ballooning $36 trillion debt, as per CNBC.
"Crypto is loving the Moody’s downgrade: Bitcoin is now 4% away from a new all time high and up over +40% since its April low. As the US Dollar weakens and uncertainty rises, Bitcoin and Gold are thriving. Instability is Bitcoin’s best friend," wrote the analysts at Kobeissi Letter.
The agency cited political dysfunction, growing entitlement spending, and tax revenue shortfalls as significant contributors. U.S. deficits could hit 9% of GDP in 2035, from 6.4% in 2024, as per The Times. Moody’s warned, and rebuked the recent fiscal consolidation plan as inadequate to put long-term debt on a stable path.
Downgrading a country’s credit rating is rare and significant because it tells global investors that government bonds, one of the safest assets in the world, carry more risk than they once did. A downgrade could increase borrowing costs and undermine confidence in the U.S. financial system.
President Donald Trump, who is in his second term, has not commented directly on the downgrade, but his administration’s aggressive trade policies and ambition to extend the 2017 tax cuts have made a bad fiscal outlook even more dire, critics say. Treasury Secretary Scott Bessent dismissed the downgrade outright, stating, “I don’t put much credence in Moody’s.”
However, the U.S. dollar weakened against a basket of currencies. In economic uncertainties, investors rely more on other assets, and crypto may be the biggest beneficiary in the economic climate.
