Democrats Push To Eliminate Debt Ceiling – What It Means For Crypto

January 23, 2023 9:46 pm Comments

As the federal government is once again faced with the situation on what should be done once they hit the debt ceiling, the House Democrats have made a new proposal.

In the proposal, they are essentially proposing the idea to eliminate all limits of federal borrowing which means that they want to eliminate the debt ceiling.

In simple terms, this will allow the government to do unlimited borrowing if it really wants to.

Although the idea seems good in theory, such a change may have enormous impact on financial markets and the crypto market is no exception to that.

It is well known that the state of the US economy will likely impact the amount of capital that flows in and out of the crypto markets given the fact that crypto is still traditionally considered a “risky” asset.

FoxNews reports:

“Weaponizing the debt ceiling and using it as a pawn in partisan budget negotiations is dangerous and repeatedly brings our nation to the brink of default, which would be disastrous to the U.S. economy – something we’ve witnessed as recently as 2011 when Republicans created a debt ceiling crisis that resulted in the first ever downgrade to the U.S. credit rating,” said Rep. Bill Foster, D-Ill.

“The government has an obligation to pay its bills,” he added.

“Threatening to default on our debt is the same as ordering an expensive meal at a restaurant, eating it, and skipping out without paying. We can and should have a real conversation about overall spending, but the full faith and credit of the United States must never be compromised.”

It is clear that the pandemic in the past few years has drive the debt to extremely high levels and has made the government hit the ceiling much quicker than anticipated.

The Treasury Department also commented on the situation and has stated that the debt ceiling will likely need to be increased by the summer at the latest.

Since the situation can be quite risky, it may actually encourage investors to diversify into crypto given the fact that digital assets are considered assets that are used globally.

Unlike fiat currencies, they are not tied to only be used in specific regions and many may see them as a way to hedge themselves against any economic downturns or inflation.

The full effects is still unknown as a default has not been experienced yet and many are hoping that it does not get to that point.

CoinDesk concludes:

Last week, U.S. Treasury Secretary Janet Yellen warned the federal government would reach its statutory debt limit of $31.4 trillion on Jan. 19.

Understandably, that’s scary and might force crypto investors to reconsider the sustainability of bitcoin’s (BTC) recent rally. After all, we are talking about the government of the world’s largest economy with the deepest financial markets and one that controls the supply of the global reserve currency, the greenback, reaching the limit on how much it can borrow to fund its operations.

Still, it’s no time to panic because any government shutdown won’t happen immediately. Yellen has promised to implement “extraordinary measures” to help the government meet its obligations for at least five months, buying a few months for Congress to end the deadlock and increase the so-called debt ceiling to avoid a shutdown.

These measures could bode well for risk assets, including cryptocurrencies, according to analysts.

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