The US federal government standard has been rejected – at least for now. On October 7, the Senate voted to increase the debt limit by $ 480 billion, the amount that the world’s largest borrower needs to continue paying off debt until early December.
The agreement provided a temporary solution to a week-long party political resistance in which investors inside and outside the United States were worried. The prospect of the US defaulting on its once-unimaginable debt seems more likely than ever.
As the uncertainty in the system peaked ahead of the vote, the cryptocurrency market, led by the largest Bitcoin (BTC) rally in months, has been doing well. This has led to the usual tales of cryptocurrencies being cut off from more traditional asset classes and that Bitcoin is a safe haven amid an impending economic disaster.
So what are the possible implications of the debt crisis for the role of digital assets in the global financial system?
Increase your credit card limit
With control over the pressure of the global reserve currency, the US government is in a unique position to set a debt limit. Congress first imposed a ceiling on total government debt in 1939, and that limit has increased more than 100 times since then.
While raising the debt ceiling is usually not a party issue, this time it was different. Embarrassed by the Democrats ‘ambitious social and climate agenda, Senate Republicans have taken a principled stand, refusing to support opponents’ attempts to meet the impending deadline to either raise the debt ceiling or default on federal debt.
The lack of Republican support for raising the debt limit, which would require 60 votes for the Senate to pass instead of the simple majority that Democrats already have, can be seen as a symbolic move. The increase in the amount that the Treasury can borrow does not in itself account for new expenditures, but is aimed at covering existing debt.
Regardless of party politics, some critics believe that the federal debt policy of constantly raising the loan ceiling is bad for the wallet of ordinary Americans. Chris Klein, co-founder and CEO of cryptocurrency firm Bitcoin IRA, told Cointelegraph:
“The government has given itself the opportunity to increase the credit card limit every year on average for the past 100 years, and this has implications for the middle class. Middle-class Americans are feeling the most damage to their wallets after inflation and rising spending, all of which were driven by politics. expands the USD balance.
The only temporary fix for the Senate-approved solution is preventing a debt ceiling issue before early December, effectively perpetuating macroeconomic uncertainty. A great argument is that this uncertainty could play into the hands of Bitcoin in the coming weeks.
Arina Kulakovska, head of corporate payment solutions at CEX.IO, believes that “this uncertainty could continue to drive the Bitcoin rally.”
Meanwhile, Kulakovskaya noted that cryptocurrencies are starting to “move away from old markets”, which could lead to the fact that they become less resilient in macroeconomic dynamics, which will have a serious impact on traditional asset classes.
Kai Hemani, CEO of electronic trading platform Spectre.ai, believes that the impact of debt reduction on financial markets in general, including digital assets, “is likely to be beneficial as it means more liquidity in the system (read: more debt), which, usually goes to financial assets first.
Al Khaimani also noted that: “High debt erodes the dollar’s value over time, and this reinforces the narrative – no matter how misleading it is – that cryptocurrency is a safe haven resource.”
However, the extent to which cryptocurrencies have disconnected from other assets such as stocks is still debated. Eric Blaker, an analyst at investment advisory firm The Motley Fool, commented to Cointelegraph:
“As a currency that relies on predetermined mathematics rather than political equilibrium, you might think that Bitcoin would benefit from events such as confrontation over the debt ceiling. […] While most Bitcoin fans point out that it is a limited supply asset that should have value as the US writes off more and more debt, the reality is that it is closely related to the seller’s short-term value of other risky assets – Abroad “.