Bitcoin Price Can Soar Above $25,000 Due To Debt Ceiling Debacle – Here’s How
While yesterday’s Biden-McCarthy meeting did not result in an try-on on the debt ceiling in the U.S., this could have uncontrived implications for the unshortened financial market and Bitcoin. And the implications for the Federal Reserve’s efforts to fight inflation are nothing short of massive.
When the question of how the Fed would handle a failure to raise the debt ceiling came up during the FOMC printing priming yesterday, Chair Jerome Powell was noticeably annoyed.
“There’s only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all its obligations,” Powell said yesterday, remoter stating: “No one should seem that the Fed can protect the economy from the consequences of lightweight to act in a timely manner.”
Debt Ceiling’s Impact On Bitcoin Price
But what exactly does it midpoint for the financial markets and specifically Bitcoin if the debt ceiling is not raised? Jurrien Timmer, Director of Global Macro at Fidelity Investments has commented on this.
Timmer explained in a Twitter thread that the “fiscal cliff” is a “complicated dance” and could thwart the Fed’s quantitative tightening (QT) efforts. Since the Fed began siphoning liquidity through higher interest rates and QT a year ago, overall liquidity has declined.
However, liquidity has stabilized since then as tightening has been offset by an influx of liquidity from reverse repos (RRP) and the Treasury General Account (TGA). Remarkably, the stock market, and Bitcoin due to its correlation to traditional markets, stopped falling at this point.
The orchestration unelevated shows the Fed wastefulness sheet (gray) and the TGA (purple). Timmer explains, “Note how the TGA spiked in 2020 as the Fed grew its wastefulness sheet from $3.76 trillion to $8.97 trillion. Then the Treasury drew lanugo its TGA wastefulness to pay for the stimulus bill.”
Timmer describes the relationship between the debt of the U.S. government, the Fed, and the TGA as follows:
How is that for debt monetization? The Fed monetizes the Treasury’s debt, in the process generating income on its portfolio, which then goes into the TGA, which the Treasury then draws on to pay its bills. Creative accounting, to say the least!
A Liquidity Rally
Ironically, Timmer says, a political showdown over the debt ceiling would gravity the Treasury to phlebotomize its $569 billion TGA wastefulness to stave a technical default. This would be stimulative and would have a significant negative impact on the Fed’s efforts to fight inflation through QT.
As increasingly liquidity would be flushed into the market, it could be “the fuel that enables the market to alimony climbing the wall.” On the other hand, if the debt ceiling is lifted, the TGA would not need to be drawn down, which could have a negative impact on risk resources such as Bitcoin.
Currently, it is not well-spoken when the debt ceiling will be reached in the United States. Estimates so far are for the second half of the year, although the ceiling could be reached much sooner, as other experts argue, referring to the deportment of the U.S. government.
As the market thrives on expectations, and yesterday’s FOMC meeting revealed dovish tones by the Fed (for the first time in this cycle), Bitcoin could protract its move towards $25,000 if the debt ceiling debate continues over the next few weeks.
At printing time, the Bitcoin price stood at $23,761, stuff rejected once then at the crucial resistance zone whilom $24,000.