Analysts Disagree on Fed, US Debt Ceiling Affecting Bitcoin Price
On April 26, House Republicans narrowly passed their bill to raise the US debt ceiling. This led to analysts already weighing the potential impact on the price of Bitcoin (BTC), ranging from extremely bearish to overly bullish.
Ultimately, US dollar liquidity is key to both of these opposing views.
“Deflationary Recession” to Produce 2020-Like BTC Rally?
Some analysts, including Jesse Meyers, COO of investment firm Onramp, believe raising the debt ceiling will cause the Federal Reserve to print more money, thereby increasing capital inflows into “risky” assets such as Bitcoin.
The debt ceiling represents the maximum amount the US government can borrow to pay its bills.
Related: Fed Balance Sheet Adds $393B In Two Weeks – Will This Send Bitcoin Price To $40K?
Raising it means they can issue more debt to generate more capital. But with the Fed no longer buying bonds thanks to its “quantitative tightening” and the flow of available M2 money supply crashing, US Treasuries may find it difficult to attract buyers.
In other words, a deflationary recession that Meyers believes will force the Fed to return to its quantitative easing policy.
“When the debt ceiling is lifted and credit crunch leads to economic crisis… they will have to print money on a massive scale,” he noted, recalling:
“Bitcoin was the winner during the last round of stimulus.”
Dollar’s credibility bump will boost Bitcoin price
The government has already reached its debt ceiling of $31.4 trillion in January 2023. So it theoretically cannot generate more capital until the Senate passes the bill passed by the House.
However, it is unlikely to pass the Senate, and Biden has also vowed to veto the bill.
The gap could lead to the US government defaulting on its debt in June, which has negative consequences for the US dollar, according to Jeff John Roberts, crypto editor at Fortune.
“If [Republicans] decides to go the kamikaze route under the current debt ceiling, it will deliver another big hit to the dollar’s credibility – and a further boost to Bitcoin,” he noted.
Former US Treasury Secretary Lawrence Summers, meanwhile, plays down fears of a potential debt default, noting that the odds of that happening are less than 2%.
Summer:
“I think the odds that we will default in the sense of insolvency, and over some interval that people holding bonds won’t be able to get paid, is – assuming the absence of a major war – certainly under 2% over the next decade.”
Fed won’t go QE, bears claim
Analyst TedTalksMacro presents a similar view says extending the debt ceiling will ensure that the Fed continues to draw down its balance sheet through the ongoing QT.
That points to lower liquidity and, in turn, more downside pressure for Bitcoin.
“A caveat to liquidity down/sideways for the rest of 2023 would be the Fed unwinding or slowing the current QT pace,” TedTalksMacro adds.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.
