I thought that this week might be a good time as any to look at the implications of the Debt Ceiling on Bitcoin, as the next major move in crypto seems to be dependent on this outcome.
Most experts agree that a U.S. government default would be catastrophic for the U.S. economy and the economy would likely fall into a recession.
Recently, Treasury Secretary Janet Yellen said that the debt ceiling needs to be lifted before June 1 as the USA risks missing its debt obligations due to Treasury bondholders, thereby defaulting on its sovereign debt.
Accordingly, 1-year CDS's are rising.
In such a scenario it would not be an overreach to assume that the stock markets would crash.
The USA has been here many times before, with down-to-the-wire negotiations. Usually, a resolution is made. Causing a relief rally.
Bipartisan negotiations are underway to lift the debt ceiling, but no agreements are in sight.
The Democrats and Republican parties are arguably the widest apart they have ever been in terms of policies, and ideas on a debt resolution.
I think the more interesting question here is what is the market reaction likely to be if a default is confirmed. Or avoided.
Judging by consensus opinion from a Twitter survey, most participants see little chance of default.
That's not a great sign.
Gold is an obvious winner. No doubt about it. It's a no-brainer. Check out the survey results from professional and Retail investors from Bloomberg.
|
|
Personally, I think Bitcoin could fall on a knee-jerk reaction from stocks plunging, but then gain quickly as traders scramble to find alternatives to the U.S. dollar.
Stablecoins could lose their investment appeal since most are in short-term U.S. government bonds and cash.
On-chain and technical analysis obviously have advantages over fundamentals in terms of pointing entry points and breakouts.
Large swaths of Daily Active Address and MACD price Divergence both point squarely at the $24,400 area as the best dip buying point if a deeper retrace did take place.
If you favor the all bets are off scenario and $22,000 support cracks then $14,500 could be an extreme pick-up point.
Should we see immediate strength after the fact or a resolution is reached then multi-day strength above $27,550 seems to be the technical Buy zone to watch for clues that $30,000 plus is coming.
In summary, A U.S. debt default could trigger a flow of assets into the crypto industry. However, we just don't know if the knee-jerk reaction will be down and then up or indeed up and up.
