Some issues never truly go away, and the US debt ceiling, which limits the maximum amount the government can borrow, is one of them. It’s back in the spotlight, but past experience suggests it could be positive for bitcoin (BTC) and risk assets in general.
The US will be hit its roughly $36 trillion debt limit on Tuesday, meaning it cannot borrow more from the public to fund its operations.
“The debt limit does not allow new spending, but it does create the risk that the federal government may not be able to finance existing legal obligations that have been made by Congress and Presidents of both parties in the past,” said outgoing Treasury Secretary Janet Yellen in a official announcement on Friday.
The very thought of the world’s largest economy not being able to borrow more may scare investors, but remember that a default and government shutdown won’t happen right away. Yellen said the Treasury would implement “extraordinary measures” from Tuesday, the time to buy at least March 14.
One potential proposal could run down the Treasury General Account (TGA), the government’s operating account at the Fed used to collect taxes, customs duties, proceeds from the sale of securities, and public debt receipts. while facilitating government payments.
The previous debt ceiling episode in early 2023which involved the use of TGA to meet expenses, which positively affected risk assets, including bitcoin.
That is because when the government spends the TGA balance, the money goes into the bank accounts of various entities, such as contractors, employers and others, in commercial banks. This increases the amount of reserves held by commercial banks. With more reserves, they have a better capacity to lend money, which can increase lending or investment in the broader economy and financial markets.
As of Monday, the Treasury General Account balance was $677 billion.
The chart depicts the price of Bitcoin along with changes in the Treasury General Account (TGA) balance over the past five years.
Interestingly, TGA drawdowns often coincide with bitcoin bull runs, suggesting an inverse relationship between the two.
