US Reaches Statutory Debt Limit on Jan 19, Cryptocurrency to Gain?

Paigambar Mohan Raj

The United States will reach its $31.4 trillion statutory debt ceiling on Jan 19. U.S. Treasury Secretary Janet Yellen forewarned the development recently. Understandably so, the situation is concerning. However, observers say that the measures by the treasury will ease financial conditions. The actions may also bring stability to risky assets such as cryptocurrency.

Treasury Secretary Yellen said she would take “extraordinary measures” to aid the government in meeting its obligations for at least five months. With more time, Congress will be able to resolve their disagreement and raise the so-called debt ceiling, preventing a shutdown.

According to analysts, the measures could be beneficial to the cryptocurrency sector.

How would the cryptocurrency sector benefit?

According to Noelle Acheson, author of “Crypto Is Macro Now,” Treasury Secretary Yellen’s “measures” will include a cap on the new debt that may be issued. As a result, there will be fewer available US Treasuries, which will drive up prices and lower yields. Lower rates suggest a more accommodating monetary environment, which is advantageous for risky assets.

Bond yields are the cost of borrowing in the economy. Additionally, investors’ willingness to take on risk is directly correlated with the availability of affordable credit. The risk appetite increases when returns decrease and vice versa.

Since early 2020, the majority of the movement in equities, cryptocurrencies, and other risky assets has been in the opposite direction of the yield on U.S. Treasury notes (government bonds). The 10-year Treasury yield increased by 153 basis points to 3.88% last year due to the Federal Reserve’s (Fed) quick rate rises, which caused the market value of Bitcoin, the most valuable cryptocurrency, to decline by nearly 60%.

Therefore, we could be looking at another push to the cryptocurrency sector. Major coins such as Bitcoin (BTC) and Ethereum (ETH) are already on a positive streak. The measures by Secretary Yellen could propel the projects to new yearly highs.