As both sides of the political spectrum have waged war on America’s debt ceiling and worked hard to formulate a deal, there’s growing concern that the Treasury is going to issue more than $1 trillion in new bills. Many analysts are worried about this as they say such a move could have atrocious effects on the market.
The Treasury May Hurt BTC
Alex Lennard – investment director at global asset manager Ruffer – explained in an interview:
Our concern is that if liquidity starts leaving the system, for whatever reason, this creates an environment where markets are crash prone.
This was seconded by Mike Wilson, an equity strategist at Morgan Stanley. He claimed that while the Treasury is more than likely trying to refill “empty coffers,” the market may lose a heavy amount of liquidity should it move forward with its present plan, and thus a major correction could be heading our way.
There is also concern that the Fed could potentially seek to hike rates further in the coming weeks given inflation has not died down over the past few months the way financial analysts had initially hoped for. Yuga Hasegawa – crypto market analyst at Bit Bank in Tokyo – mentioned:
The debt ceiling issue could soon be a thing of the past, but the future trajectory of the Fed funds rate will continue to weigh on the market sentiment, and bitcoin’s weekend rally could be hindered depending on the series of economic data slated for this week, such as ISM’s manufacturing PMI and May’s jobs report.
Still, there is some good news in that economists anticipate a whopping 180,000 jobs to be added to the market in the coming future. However, this doesn’t change the fact that unemployment is expected to move up to close to four percent, and that 180K figure is nothing compared to the 250,000 jobs that were added as recently as April. Hasegawa explained:
Economic data in the last month have indicated the resilience of the U.S. economy. Most of all, core indexes for CPI and PCE, as well as trimmed, mean PCE inflation rate for April did not show any significant improvements. The Fed Funds futures market now prices in [a] roughly 65% chance of another rate hike… and if the number keeps going up, it will likely be a headwind for bitcoin and other cryptocurrencies.
Could There Be Price Dips?
The Treasury and its department head Janet Yellen have made it clear that crypto and other assets are not their main priorities.
Thus, it would be a huge pity if they went ahead with the move anticipated above and it sucked further liquidity out of the market given how far tokens like bitcoin have come this year after enduring some of their most bearish conditions in 2022.