The US debt ceiling situation has the potential to cause significant corrections in both stocks and cryptocurrency markets. Failure to reach a deal between President Joe Biden and Republicans could be “catastrophic” for the global market. Alternatively, if an agreement is reached, it may result in investors selling off their stocks and cryptocurrencies to purchase high-yield Treasury bills and debt funds.
Goldman Sachs reported that the US Treasury Department is expected to issue $600-$700 billion in Treasury bills in the weeks following the debt ceiling deal. This comes as Treasury Secretary Janet Yellen warned that the US Treasury would run out of funds by June 1. The Treasury General Account has already fallen from $316 billion to $57 billion in May, marking a significant decline from the opening balance of $636 billion for this fiscal year. Despite ongoing negotiations between President Biden and the Republicans, no deal has been reached yet. House Speaker Kevin McCarthy remains confident that an agreement will be made before the June 1 deadline.
The dilemma lies in the fact that President Biden refuses to agree to spending cuts in the federal budget, and Republicans have rejected his push for new taxes. Goldman Sachs predicts a total of $1 trillion in T-bills will be issued this year to restore the US Treasury’s cash balance. As a result, bank reserves are expected to drop by $500 billion due to T-bills, a fall in bank deposits, and the upcoming Federal Reserve rate hikes.
The US Federal Reserve officials are discussing raising interest rates by over 6% in response to inflation and a tight job market. These US dollar liquidity issues are anticipated to cause Bitcoin and other cryptocurrency prices to decline in the short term. Historically, Bitcoin’s price movements tend to be inverse to US treasuries and the US dollar. The US dollar index (DXY) has once again jumped over 103.50 amid these stringent market conditions.
In the meantime, theBTC price is currently trading at $27,360, up 2% in the last 24 hours. The increase is driven by Asian traders in anticipation of the US debt ceiling deal. However, Bitcoin is expected to rally in the coming weeks as investors shift funds into cryptocurrencies amid the weakening US dollar dominance.
Global stock markets, on the other hand, are struggling due to the looming impact of the debt ceiling deal. In 2011, the stock market crashed by 20% as a result of the debt ceiling crisis. If history repeats itself, the stock market could potentially crash by 40%, according to Bloomberg market data.
In conclusion, the US debt ceiling situation carries both pros and cons for financial markets, causing fluctuations in both cryptocurrencies and stocks. It remains crucial for investors to carefully consider these factors and conduct thorough market research before making any investment decisions.