Some problems never really go away, and the U.S. debt ceiling, which limits the maximum amount the government can borrow, is one of them. It’s back in the spotlight, but past experience suggests this could be positive for bitcoin (BTC) and risk assets in general.
The United States will hit its debt limit of about $36 trillion on Tuesday, meaning it won’t be able to borrow more from the public to finance its operations.
“The debt ceiling does not authorize new spending, but it creates the risk that the federal government will not be able to finance its existing legal obligations that Congresses and presidents of both parties have incurred in the past,” said outgoing Treasury Secretary Janet Yellen. an official announcement on Friday.
The very idea of the world’s largest economy being unable to borrow more could spook investors, but note that a default and government shutdown won’t happen immediately. Yellen said Treasury would implement “extraordinary measures” starting Tuesday, buying time until at least March 14.
One potential measure could be to reduce the Treasury General Account (TGA), the government’s operating account at the Fed used to collect taxes, tariffs, proceeds from the sale of securities and debt receipts. public while facilitating government payments.
The previous debt ceiling episode in early 2023, which involved the use of the TGA to meet expenses, had a positive impact on risk assets, notably Bitcoin.
This is because when the government spends the balance of the TGA, the money goes to the bank accounts of various entities, such as entrepreneurs, employers and others, in commercial banks. This increases the amount of reserves held by commercial banks. With more reserves, they have a better ability to lend money, which could potentially increase lending or investment in the broader economy and financial markets.
As of Monday, the balance in the Treasury’s general account was $677 billion.
The chart illustrates the price of Bitcoin as well as changes in the Treasury General Account (TGA) balance over the past five years.
Notably, TGA declines have often coincided with Bitcoin bull runs, suggesting the inverse correlation between the two.
