President Joe Biden and House Speaker Kevin McCarthy concurred to raise the national borrowing limit so that the government doesn’t run out of money to pay its bills, yet the deal still requires approval from Congress.
Raising the debt ceiling doesn’t authorize new spending. Nevertheless, the Treasury Department can issue new debt to cover spending and avoid a catastrophic default. The debt that the U.S. has taken on is at its statutory limit of $31.4 trillion because revenue, mainly consisting of taxes, has decreased, not to mention that the country’s senior population is growing, which puts enormous pressure on Social Security.
Bitcoin touched $28,000 on Monday morning, the highest level in more than two weeks, following an announcement that the White House has struck a deal to avert a debt ceiling crisis. Whales and long-term holders immediately accumulated during the volatility. At present, you can buy Bitcoin at $27,738.73. Speaking of which, the live price of Ethereum today is $ 1,893.12.
Most cryptocurrencies experienced positive gains following the market reactions to the news about raising the U.S. debt limit; if the deal is approved by Congress, it will prevent America from defaulting on its debt. As it’s well-known, Bitcoin is sensitive to U.S. dollar liquidity swings.
Once The U.S. Raises Its Debt Limit, Treasury Will Increase Its Reserve Balance
As the nation’s debt has soared, the Treasury Department has had no choice but to borrow money to pay for government spending. The upper limit set on the amount of money a government can borrow is called the debt ceiling.
With time, many efforts have been made to raise or abolish the debt limit, pushing the economy into crisis. Once again, this issue is on the table. If the U.S. defaults on its bills, we would face the worst possible crisis, and the consequences would be severe for America and the rest of the world. The U.S. has never missed making payments before, so it would be the first time in history.
Raising the debt ceiling has been a standard procedure for Congress over time. Since 1960, the U.S. has raised the debt limit 78 times, 49 times under Republican presidents and 29 times under Democratic presidents. Once the debt ceiling is raised, the Treasury Department can increase its cash balance by issuing government bonds, stimulating economic spending.
More precisely, the bonds issued by the government help finance projects and day-to-day operations. Many argue this move would “suck out” liquidity from the system and put pressure on bond yields. Bitcoin is known to move in the opposite direction of bond yields, so even if a potential deal eliminates economic uncertainty, Bitcoin could suffer.
Bitcoin Could Finally Decouple from the Global Stock Markets
There’s long been a correlation between the price of cryptocurrencies and the stock market due to growing awareness from retail and institutional investors. As a result, the factors that affect stock market prices and performance impact cryptocurrency prices as well.
It seems that Bitcoin’s price movement is slowly but surely decoupling from the global stock markets. The interdependence between Bitcoin and S&P 500, the best single gauge of large-cap U.S. equities, is at its lowest point since September 2011, as noted by Coin Metrics, a provider of crypto financial intelligence. Bitcoin was created as a result of the 2008 crisis, so having an uncorrelated asset makes perfect sense.
As trust in the government is eroding, it wouldn’t come as a surprise if Bitcoin remained the only game in town. The scarcity of Bitcoin makes it a good hedge against inflation, providing protection against the decreased value of the U.S. dollar.
Nonetheless, it’s important to remember that no asset class is guaranteed to increase value in non-inflationary times. For the time being, Bitcoin remains correlated to the stock market in spite of its outperforming other risk assets. In other words, it’s too early to say for sure what will happen, even if Bitcoin continues to move in the opposite direction of the Nasdaq ratio.
Failure To Increase the Debt Limit Could Have Negative Implications for Bitcoin
Failure to lift or suspend the debt limit would have devastating consequences for the U.S. economy, felt in every American household. If the 320-page proposal doesn’t get the much-needed votes to move forward, the Treasury Department would have to choose between making interest payments to its debtholders and paying its non-debt obligations (e.g., veterans’ benefits, food stamps, unemployment insurance, etc.).
Equally, failure to increase the debt limit on time would have profound consequences on the price of Bitcoin and other cryptocurrencies. The struggle to raise the debt limit illustrates the bureaucratic challenges underpinning key aspects of the U.S. economy.
The process of raising the debt ceiling involves legislative action; the extraordinary measures, while legally permissible, are finite resources. The question now is: What are the potential implications for the cryptocurrency market? Well, the Treasury yield curve, which depicts the yields of short-term bills compared to the yields of notes and bonds, a critical indicator of investor sentiment, can experience great fluctuations.
If the Treasury yield curve goes down, there will be fear over market stability, which inevitably influences the crypto market. While Bitcoin established new support at $27,738.73, the market is still uncertain.
Wrapping It Up
The U.S. government risks running out of money, so President Joe Biden and House Speaker Kevin McCarthy have reached a tentative deal on raising the borrowing limit and avoiding sending the nation into recession. The repercussions of the first-ever default on the federal debt would ricochet around the world.
Historically, Congress has raised the limit on an as-needed basis. Nevertheless, as political parties have become more polarized, it’s difficult, if not impossible, to reach an agreement. The next step for investors will be to grasp what the debt ceiling deal will mean for Bitcoin and what other factors could possibly impact its performance.
Bitcoin climbed to the highest level in two weeks on Monday morning, i.e., $28,000, owing to investor sentiment, so exchanges witnessed capital inflow. Now more than ever, it’s important to own hard assets because the U.S. dollar could be dethroned, according to former Wall Street trader MacroJack.