The US is likely to reach the maximum it is legally allowed to borrow at some point between Jan. 14 and Jan. 23, Treasury Secretary Janet Yellen said in a Friday letter to the speaker of the House of Representatives, Mike Johnson. After that, the Treasury will take “extraordinary measures” to reduce borrowing.
“I respectfully urge Congress to act to protect the full faith and credit of the United States,” he wrote. In June 2023, Congress suspended the debt limit until Jan. 1, 2025.
Risk assets weakened at the market close, before the letter was made public. US equities fell, with the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all losing about 1%. Bitcoin is down as much as 4% from its intraday high.
Raising the debt ceiling has traditionally been a negative signal for the largest cryptocurrency, which has either declined or underperformed on the following days on the past five occasions.
This December has not been a strong month for bitcoin, which is down 3% and is on track for its first red month since August.
To add to the political and economic uncertainty, President-elect Donald Trump’s inauguration will take place on January 20, between the dates highlighted by Yellen.
According to ZerohedgeCongress first established the debt limit of $45 billion in 1939 and raised it 103 times as government spending continued to exceed tax receipts. The US national debt now more than $36.2 trillion.
Another influence on the price of bitcoin is its parallel to previous cycles. Since the cycle low that occurred during the FTX collapse in November 2022, BTC is in line with the previous two cycles.
It is now shy of a 500% return, similar to two previous cycles at the same point in the cycle. That’s not a good sign for the bulls.
The 2018-2022 and 2015-2018 cycles both saw significant drawdowns at this point in the cycle, highlighted by the red box in the chart below. It’s just possible that Trump’s January 20 inauguration date could signal a bottom for bitcoin.
