Moodyโs Investors Service downgraded the United Statesโ credit rating from Aaa to Aa1 on May 16, 2025, citing increasing federal debt and deficits.
The downgrade may raise US borrowing costs and affect crypto markets, particularly Bitcoin and Ethereum, as investors reassess risk and currency stability.
Moodyโs Downgrades US Credit to Aa1 Rating
On May 16, 2025, Moodyโs officially downgraded the US long-term credit rating, citing persistent deficits. The action follows similar moves by Fitch and S&P, ending the USโs last AAA rating among major agencies. Moodyโs stated that they have downgraded US credit due to rising federal debt and interest payment burdens. This decision reflects the inability of successive US administrations to curb fiscal deficits, according to Moodyโs statement.
โSuccessive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.โ โ Moodyโs Statement
Downgrade Sparks Concerns Over Rising Borrowing Costs
The downgrade signals a potential increase in US borrowing costs, affecting investor strategies. It could drive volatility in crypto markets, including Bitcoin and Ethereum, which often respond to economic uncertainty. Moodyโs highlights that if tax cuts are extended, the fiscal deficit may grow by an additional $4 trillion over the next decade. Historically, such downgrades have stirred debates on the dollarโs reserve role, impacting crypto as a โdigital goldโ alternative.
2011 S&P Downgrade Echoes in Todayโs Market Reaction
Past downgrades, like S&Pโs in 2011, caused market volatility where gold and Bitcoin saw price increases. These events deepen global discussions on the US dollarโs reliability as a reserve currency. Kanalcoin experts predict that if current revenue patterns persist, the deficit-to-GDP ratio might near 9% by 2035, aligning with historical projections and similarly affecting global market dynamics and crypto volatility.
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