On April 26, House Republicans largely failed to pass a bill to raise the U.S. debt ceiling. This has led analysts to weigh its potential impact on the price of Bitcoin (Bitcoin)from pulling down the price to pulling up the price.
final, USD liquidity is the crux of the two opposing views.
Will ‘Deflationary Recession’ Help BTC Recover Like 2020?
Several analysts, including Jesse Meyers, COO of investment firm Onramp, believe Raising the debt ceiling will boost The Federal Reserve (Fed) prints more moneythereby facilitating capital inflows into “risky” assets such as Bitcoin.
BTC/USD daily price chart with USD liquidity. Source: TradingView
bare in debt Represents the maximum amount the U.S. government can borrow to pay its bills.
Raising the debt ceiling means the U.S. government can issue more debt to generate more capital. But the Fed is no longer buying bonds for policy reasons”quantitative tightening” and line money supply M2 The U.S. government’s public debt may struggle to attract buyers as availability declines.
Annual M2 flows and stocks.Source: Bloomberg
In other words, a deflationary recession Meyers believes this will force the Fed to restart quantitative easing.
“When the debt ceiling is lifted and the credit crunch leads to an economic crisis … they’re going to have to print money massively. Bitcoin was the winner of the last stimulus cycle. “
Bitcoin Price Pushes Higher as Dollar Loses Credibility
The government reached the $31.4 trillion debt ceiling in January 2023. So in theory, they won’t be able to generate more capital until the Senate passes a bill that the House has already passed.
U.S. public debt to date. Source: FRED
However, the bill is unlikely to pass the Senate, and Biden has vowed to veto it.
According to Jeff John Roberts, Fortune’s cryptocurrency editor, the impasse could lead to a U.S. government default in June, negatively affecting the dollar.
“If the Republicans decide to go the kamikaze (Suicide Squad) route during the current debt ceiling impasse, it will deal another major blow to the dollar’s credibility – helping push BTC prices to the moon”.
Meanwhile, former U.S. Treasury Secretary Lawrence Summers allayed concerns about a potential default, noting that the chance of that happening was less than 2 percent.
“I think the probability that we default in the sense of insolvency and bondholders not getting paid for a period of time — assuming there’s no major war — is certainly below 2% over the next decade.”
Bears insist the Fed won’t do QE
Analyst TedTalksMacro made a similar point explain Expanding the debt ceiling will ensure the Fed continues to shrink its balance sheet through the current QT.
This points to lower liquidity, thus adding to bearish pressure on Bitcoin.
“One note on the downside/sideways liquidity issue for the rest of 2023 is that the Fed will end or slow the current pace of QT.”
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As reported by Cointelegraph