Some problems never really 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 United States will reach its debt limit of about $36 trillion on Tuesday, meaning it cannot borrow more from the public to finance its operations.
“The debt limit does not authorize new spending, but it does create a risk that the federal government may not be able to fund its existing legal obligations that Congresses and presidents of both parties have made in the past,” said outgoing Treasury Secretary Janet Yellen in a press release. an official announcement Friday.
The very thought of the world’s largest economy not being able to borrow more may spook investors, but note that a default and government shutdown won’t happen immediately. Yellen has said the Treasury Department will implement “extraordinary measures” starting Tuesday, buying time at least until March 14.
One potential measure could be to dismantle the Treasury General Account (TGA), the government’s operating account at the Fed that is used to collect taxes, duties, proceeds from the sale of securities and government debt revenue, while facilitating government payments.
The previous episode of the debt ceiling in early 2023, which involved using the TGA to cover expenses, positively affected the risk assets, including bitcoin.
This is because when the government uses the TGA balance, the money goes into the bank accounts of various entities, such as contractors, employers and others, in commercial banks. It increases the amount of reserves that commercial banks have. With more reserves, they have a better capacity to lend money, potentially increasing lending or investment in the wider economy and financial markets.
As of Monday, the balance in the Treasury’s general account was $677 billion.
The chart illustrates Bitcoin’s price along with changes in the Treasury General Account (TGA) balance over the past five years.
In particular, draws in the TGA have often coincided with bitcoin bull runs, suggesting the inverse correlation between the two.
