The set of institutional measures in the United States, after going through the so-called debt ceiling drama, affects Bitcoin and other assets.
Recently, The US House of Representatives temporarily removed the restricted borrowing limit until the 2024 election, and the Senate followed suit then. The relief appears to give markets some hope. However, risk assets such as Bitcoin are presented with a new challenge that negatively affects their projection.
Basically, it is that the Treasury Department must rebuild its balance sheet after assuming the government deficit for months. Since the end of January, when the debt ceiling was reached, the Department assumed the expense, while an agreement was reached. Now, with the happy ending to the matter, the storm could settle on some risky assets, according to Citigroup.
A group of analysts from Citigroup, in a note addressed to their clients, state that the Treasury will issue $1 trillion in bills. They argue that this massive amount of collection is necessary to continue assuming the expenses of that agency, but it becomes a hammer on risk assets.
Treasury Bill Rebuild Negatively Affects Bitcoin
It is more than striking that rebuilding empty Treasury accounts negatively affects Bitcoin. In theory, being a decentralized asset, the cryptocurrency should have positive performance in the face of problems from entities such as the government. However, there are aspects that turn that rationing around, at least that’s what Citi experts think.
The short-term outlook for digital currencies is not presented as its investors would like. The latter also applies to Ether and the main assets of that market.
“Both coins average negative returns in these scenarios, and BTC has significantly underperformed in the median case,” notes Citi strategist Alex Saunders.
Hence, it is an immediate task for the Treasury to fill it up again to pay its obligations, estimated at $1 trillion, through T-bills. by the end of the third quarter. Such a movement negatively affects risky assets and particularly Bitcoin.
Cryptocurrencies and the Banking Sector against the Ropes
According to this dynamic put forward by Citi, excess supply can drain liquidity from the banking sector. To this would be added the increase in financing rates in the short term on the brink of recession. For cryptocurrencies, this does not bode well in the early stages of recovery from the debt ceiling drama.
While Bitcoin has been presenting a positive rhythm during the last few hours, its price is unable to hold firmly above the 27K barrier. For strategists, the crypto market “is not immune to debt default fears.”
In this sense, its performance was negative in moments of widespread fear and positive when there were kind headlines. That fact places BTC within the destination of risky assets, according to Citi.
The good performance in March during the banking crisis is not an identical scenario (at least in magnitude) to the risk of US government default. This mere fact, strategists explain, “does not have good projections for decentralized assets.”
Thus, the spillover effect of the debt ceiling drama affects Bitcoin in the same way as any risky asset.
Bitcoin suffered its first negative month of 2023 in May and the trend could extend. According to analysts quoted by Bloomberg, if the coin fails to hold above 25K it could suffer a strong sell-off.
By Audy Castaneda