Bitcoin is up almost 60% for the year, but down about 7% within the past month. As White House negotiations to raise the debt limit continue, it could be a prime mover for cryptocurrency prices.The question now is whether reaching a debt deal could be a good or bad thing.
A recent Coindesk article noted that it could be the latter — if a debt deal is reached, then raising the debt ceiling could mean that the Treasury could begin issuing bonds to build up its cash reserves.
In turn, this could mean bond purchases would decrease the circulation of cash or namely, liquidity in the financial system. As a result, a lack of cash means no money to buy bonds — this would drive up yields to increase bonds’ attractiveness and Bitcoin has the tendency to move in the inverse direction of bond yields.
Furthermore, a flow of cash to the safety of bonds could mean more money from risk assets like Bitcoin. That would put further downward price pressure on the crypto market.
“The issuance of debt to top up coffers will have the opposite effect – money will move out of cash and risk assets into U.S. government bonds, especially as yields on these instruments rise to offset the increase in supply,” said Noelle Acheson, former head of research at CoinDesk and Genesis Trading, in the aforementioned Coindesk article.
“This could be bad for bitcoin and gold, which in theory fall in price when yields are rising (high yield environments tend to not be great for assets that yield nothing),” she added. “What’s more, the issuance of more U.S. government debt would increase public spending, which would be good for the economy, further delaying the likelihood of rate cuts.”
Buying the Dip
Given the recent price retreat for Bitcoin, it could offer potential investors an opportunity to buy the dip. Bitcoin-linked exchange traded funds (ETFs) could offer exposure to the leading cryptocurrency under the auspices of a regulated exchange.
Having a regulatory framework in place is ideal for investors who are hesitant to allocate capital to Bitcoin until more stringent regulatory measures are in place. For ETF exposure, consider the ProShares Bitcoin Strategy ETF (BITO), the Valkyrie Bitcoin Strategy ETF (BTF), the VanEck Bitcoin Strategy ETF (XBTF), and the Simplify Bitcoin Strategy PLUS Income ETF (MAXI).
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