Bitcoin falls and heads for its first losing month of the year

Bitcoin fell on Wednesday and was on track to post a down month as optimism around the debt ceiling escalation crumbled.

The crypto market leader lost 3.4% and last traded at $26,885.72, according to Coin Metrics. Ether slipped more than 2% to $1,856.05.

Both cryptocurrencies were heading for their first losing month in 2023. Bitcoin is expected to post an 8% loss, which would be its worst month since November 2022. Ether is down 2.5% this month. If it ends the day in the red, it will make May its worst month since December 2022.

Crypto aligned with major stock averages, all of which were lower as investors awaited the House vote on the tentative agreement to raise the national debt ceiling and avoid a default on Wednesday.

“Avoiding a default is a relief, of course, but the incoming wave of issuance will take liquidity out of the market and push yields higher,” said Noelle Acheson, economist and author of the “Crypto is Macro Now” newsletter.

“In theory, this should be at least the equivalent of another rate hike – but the CME swap market is forecasting another rate hike in June on top of the impact on liquidity, expectations of a lower being pushed back to November at the earliest,” she added.

Crypto prices initially spiked over the weekend after House Republicans reached a tentative agreement with the White House to address the debt ceiling. On Monday, bitcoin and ether climbed as high as $28,461.45 and $1,928.16, respectively, but started to pull back on Tuesday.

Bitcoin and Ether are still up 62% and 54%, respectively, for the year.

—CNBC’s Gina Francolla contributed reporting