The United States is edging closer to a potentially disastrous Doomsday scenario as the debt ceiling looms large on the horizon. This could have a significant impact on the world of Bitcoin, although it's difficult to predict when exactly this will happen.
In a razor-thin decision, the Republican-controlled House of Representatives narrowly passed a bill yesterday to raise the debt ceiling. The proposal, championed by Kevin McCarthy, the House's chairman, was met with a mixed response.
The bill calls for an increase in the debt ceiling by a massive $1.5 trillion, but it comes with a catch: significant cuts must be made to government spending. As a result, the bill is unlikely to get far in the Senate, which is currently led by the Democrats. Furthermore, President Joe Biden has already hinted that he will veto the bill, further complicating matters.
Time is of the essence, however. Experts warn that Doomsday could be just a few weeks away, and if the US Treasury is unable to pay its bills, the consequences could be dire. A speedy resolution is therefore urgently needed to avert catastrophe.
How Will The US Debt Ceiling Issue Affect Bitcoin?
The debt ceiling debate has significant implications for Bitcoin and the wider crypto market, particularly regarding liquidity. Bitcoin is often referred to as a "liquidity sponge" as it tends to rise in response to loose monetary policies from central banks and falls when liquidity is withdrawn from the financial system.
Macro analyst Ted (@tedtalksmacro) argues that global liquidity is a key driver of Bitcoin's price, with recent BTC price rallies correlating with an increase in global liquidity. For example, the US Federal Reserve's expansion of its balance sheet through the Bank Term Funding Program (BTFP) during the banking crisis boosted Bitcoin's price.
China's post-Zero-COVID economic reboot also relied on loose monetary policy to drive growth, which had a positive impact on Bitcoin's price. The current debt ceiling crisis has also contributed to Bitcoin's recent price increase, as the US Treasury has had to dip into its cash reserves.
As a result of the debt ceiling, the US Treasury has been forced to use its cash reserves from the Treasury General Account (TGA) in recent months. This has led to an increase in liquidity as the balance of the TGA falls, which can have significant consequences. Macro analyst Ted has discussed the potential impact of this on Bitcoin and the crypto market.
The Treasury has mitigated the negative liquidity impact of the Fedâs QT [Quantitative Tightening] efforts to date â> total liquidity injected via the TGA has outpaced the total liquidity withdrawn by QT. Since the commencement of QT:
QT (balance sheet) = -$644B in liq.
TGA reserves = +$780B in liq.
In other words, without the US Treasury, the Fedâs QT would have already hit markets much harder. âInstead, the TGA has supported a market conducive to higher risk assets (liquidity),â Ted added.
Raising the debt ceiling will require the US Treasury to replenish its TGA reserves. This will have a negative impact on Bitcoin and cryptocurrency because the Fed's QT will no longer be mitigated. Ted concludes:
If QT draws to a close before TGA reserves are built back up â> sideways/up.
If QT continues and debt ceiling raised â> down/sideways
Ultimately, QT takes a stronger grip on liquidity when the debt ceiling is raised and that points south, unless the Fed winds up QTâŠ.
Notably, liquidity from other central banks around the world is also playing a role and may help to mitigate the impact, as Ted stated in a tweet today.
twitter tedtalksmacro@tedtalksmacro
Digital Gold Narrative Grows
In the long run, as the credit crunch leads to an economic disaster, monetary policy will revert to Quantitative Easing (QE). This will boost bitcoin and gold, which have already shown stronger association in recent weeks, according to Bitcoinist.
Renowned trader Peter Schiff commented on the debt ceiling:
Any deal to raise the #DebtCeiling isnât good news. It means the U.S. will continue not paying its bills. So the debt will continue to grow and the Fed will continue to create inflation to pay for it. Itâs bad news for the U.S. economy, dollar and bonds and good news for gold.
twitter Peter Schiff@PeterSchiff
At press time, the BTC price stood at $28,972.
BTC price, 4-hour chart | Source:Â BTCUSD on TradingView.com
#BTC #bitcoin #Binance #btcsoaring #debt Source: bitcoinist
image Source: pixabay
If you enjoy our content and want to show your support, please like, share, and follow us for more high-quality updates.
Disclaimer
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading crypto assets comes with a risk of financial loss.