How will a US debt default affect Bitcoin?
Hosted by crypto analyst Marcel Pechman, Macro Markets airs every Friday on the Cointelegraph Markets & Research YouTube channel and explains complex concepts in layman’s terms, focusing on the cause and effect of traditional financial events on daily crypto activity.
The risk of a US debt default is the first topic on this week’s show, which comes from none other than Treasury Secretary Janet Yellen. Yellen warned of potential mass unemployment, default and broad economic weakness if the US defaults on its debt. This problem comes up every couple of years, and creates some tension in Congress, but at some point they agree to raise the debt limit. So, no harm done, right?
That is partly true because if the government does not have a majority, which happens to be the case, the opposition has the upper hand to negotiate their demands. In this case, Republicans want President Joe Biden to drop $4.5 trillion in ill-fated projects, such as relieving some of the student debt or hiring thousands of Internal Revenue Service employees.
Pechman explains how the event, regardless of outcome, is bullish for Bitcoin (BTC) and discusses the odds of a sovereign debt default and how the increase in the debt ceiling drives liquidity to markets, favoring scarce assets.
The next segment of Macro Markets focuses on Tesla, the electric car maker controlled by Elon Musk. First, he will go over the significance for Bitcoin holders and the cryptocurrency sector and then go on to summarize the company’s financials and why the 9,200 BTC held by Tesla does not pose a risk to Bitcoin’s price.
The show ends by examining how short selling works. Unlike futures contracts, to sell a stock on margin, one must borrow it from a holder. Typically, these rates are negligent, perhaps between 0.3% and 3% per year. However, when there is excessive betting against the share price and the demand for shorts increases, this rate can go as high as 50% per year or become unavailable.
In the case of semi-failed First Republic Bank, which saw net redemptions of $100 billion last quarter, short sellers have trouble borrowing the stock, but Pechman explains how that doesn’t pose a problem for those interested in betting on the bank’s stock . price reduction. According to Marcel, the First Republic Bank bailout could further catapult Bitcoin above $30,000.
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