- Bond issuance will lead to a decline in demand for risky assets
- It will also strengthen the economy through capital inflows, so the Fed can “pull” an interest rate cut
- Experts think the BTC will fall
On June 1 the United States will enter a technical default unless Congress agrees to raise the public debt limit.
So far, negotiations have gone nowhere because Biden has firmly rejected the Republicans’ proposal.
But experts say a technical default scenario is unlikely.
And when the deal finally goes through, it could have a significant negative impact on the BTC exchange rate.
We mentioned this possibility when we covered the topic of BTC’s narrowing trading range and the outflow of institutional crypto funds.
Now the trend is frozen in indecision because it is influenced by two narratives.
The first is the crisis in the banking sector, which led to a surge in demand for BTC and other cryptocurrencies.
The second is a possible increase in the limit of public debt followed by the issue of Treasury bonds.
Experts believe that in the second case, the BTC exchange rate will go down. The reduction of dollar liquidity and the issuance of new bonds will lead to capital outflows.
While in the long term demand for gold and BTC will rise as a consequence of the “spiral of negative debt,” in the short term the price of cryptocurrency will fall.
This is the opinion of Noel Acheson, former head of research at CoinDesk and Genesis Trading, for example. According to her, the issuance of new Treasury bonds will lead to two market influences:
- increased government spending, which is good for the economy as a whole and further delays interest rate cuts;
- increased returns on traditional hedge assets.
All of these factors will negatively impact the BTC exchange rate. At least in the short term.
On the other hand, the default announcement will lead to an intense increase in the mass of cash, which is also bad for the bitcoin price.
Whereas the deal could increase the demand for risk assets. But Acheson doesn’t think so.
Trader Satyakam Gautam agrees with her.. He is confident that the U.S. government will issue bonds worth $700 billion in the coming months.
Such an influx of capital into low-risk assets will significantly hit high-risk assets, including bitcoin.