Debt Ceiling Update from Treasury Secretary
The U.S. is on track to reach its borrowing limit between January 14 and 23, 2024, according to Treasury Secretary Janet Yellen’s letter to House Speaker Mike Johnson. In her statement, she urged Congress to act to uphold the U.S. credit. Earlier in June 2023, Congress had suspended the debt limit until January 1, 2025.
Market Reactions
Following the release of the letter, risk assets showed weakness, with U.S. equities (S&P 500, Nasdaq 100, Dow Jones) declining about 1%. Bitcoin also fell, dropping up to 4% from its intraday high. Historically, increasing the debt ceiling has negatively impacted Bitcoin, which has underperformed shortly thereafter in previous instances.
Bitcoin Performance
This December has not been promising for Bitcoin, with a 3% decline, marking potential for its first losing month since August 2023. The upcoming inauguration of President-elect Donald Trump on January 20 adds another layer of uncertainty.
Additionally, since the establishment of the debt limit at $45 billion in 1939, the U.S. has raised it 103 times, with the national debt now exceeding $36.2 trillion.
Bitcoin’s current trajectory is comparable to previous cycles, suggesting a nearly 500% return since the FTX collapse in November 2022. However, both the 2018-2022 and 2015-2018 cycles indicate significant drawdowns during this phase, raising concerns about bullish prospects. Trump’s inauguration could also signal a bottom for Bitcoin.
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