How The Debt Ceiling Argument May Come Back To Hurt BTC

Republished By Plato

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Right now, the U.S. government is trapped in a financial fight that has both sides of the political spectrum arguing over the debt ceiling.

The Debt Ceiling Issue Could Hurt BTC

Democrats and individuals like Treasury Secretary Janet Yellen want the debt ceiling raised, as they believe the U.S. is about to go bankrupt, while the republicans and House Speaker Kevin McCarthy are saying any such hike would result in devastating financial repercussions for the standard American public.

Some analysts are saying that any kind of deal is likely to have a few nasty repercussions for bitcoin and other forms of crypto. One of the things they say will happen is the prices of bond yields will move up. Whenever this happens, bitcoin tends to go down, by contrast.

Giving her thoughts on the matter, Noelle Acheson – former head of research at Genesis Trading and the author of the “Crypto Is Macro Now” newsletter – stated:

The issuance of debt to top up coffers will have the opposite effect. Money will move out of cash and risk assets into U.S. government bonds, especially as yields on these instruments rise to offset the increase in supply. This could be bad for bitcoin and gold, which in theory fall in price when yields are rising (high yield environments tend to not be great for assets that yield nothing). What’s more, the issuance of more U.S. government debt would increase public spending, which would be good for the economy, further delaying the likelihood of rate cuts.

The fact remains that only assets tied to the true American economy stand to do well should a deal be reached following the debt crisis. Bitcoin and other forms of crypto aren’t tied to anything, suggesting they could suffer in the long run.

It is also widely believed that should the U.S. default, this would ultimately lead to panic selling and a huge desire for cash similar with what was seen during the early days of the COVID-19 pandemic. During that time, the price of bitcoin fell by more than 50 percent.

What Will Happen?

Satyakam Gautam – the rates trader at India-based bank ICICI – commented:

What it implies is a lack of USD funding in the immediate short term post the successful ceiling negotiation, if any. Corporate bonds markets, as well as private credit, will find it hard to roll over existing maturities, and this will lead to a real crash in either commercial real estate assets funding or plain junk bond issuers. This might be the real deal crash which the U.S. rate markets have been elusively looking for. There might be then a secular fall in long-end rates, as well as massive steepening in U.S. rates. This should augur well for risk haven [forex] like JPY & CHF.