A $1 trillion liquidity hole ahead
Raising the debt ceiling means the U.S. Treasury could issue new bonds to raise cash to meet its previous obligations.
As a result, the cash pile at the Treasury General Account could increase from $95 billion in May to $550 billion by June and to $600 billion in the three months afterward, according to the department’s recent estimates.
Ari Bergmann, the founder of risk management firm Penso Advisors, estimates that the Treasury will cross $1 trillion by the end of Q3, 2023.
“My bigger concern is that when the debt-limit gets resolved — and I think it will — you are going to have a very, very deep and sudden drain of liquidity,” said Bergmann, adding:
“This is not something that’s very obvious, but it’s something that’s very real. And we’ve seen before that such a drop in liquidity really does negatively affect risk markets, such as equities and credit.”
In other words, the cash available to buy riskier assets like stocks, Bitcoin and cryptocurrencies will all likely experience downward price pressure at some point after the debt ceiling is raised.
Estimated at well over $1 trillion by the end of the third quarter, the supply burst would quickly drain liquidity from the banking sector, raise short-term funding rates and tighten the screws on the US economy just as it’s on the cusp of recession. By Bank of America Corp.’s estimate it would have the same economic impact as a quarter-point interest-rate hike.
Will Bitcoin price remain rangebound?
Such macroeconomic hurdles could prevent Bitcoin from reclaiming its yearly highs of over $30,000 in the coming months, says independent market analyst Income Sharks.
“We most likely range between 20k to 30k and even get an altseason,” the analyst noted, adding:
“New money isn’t coming in; it’s all just rotating […] Unless we get a new narrative or Stocks to find a way to rally, it’s looking more likely that the U.S. elections in 2024 will be the next big catalyst.
BTC price chart technicals meanwhile show BTC/USD consolidating below its 50-day exponential moving average (50-day EMA; the red wave), near $27,650.
Failure to decisively breakout above this important resistance area will increase the chances of a pullback.
Traders should then watch for a possible correction toward the 200-day EMA near $25,000 — the next major support area, particularly if the Fed hikes by 25 basis points in June.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.