Some issues never completely go away, and one of them is the US debt ceiling, which limits the maximum amount the government can borrow. 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 will not be able to borrow more from the public to finance its operations.
“The debt limit does not authorize new spending, but it creates the risk that the federal government will be unable to fund its existing legal obligations that Congresses and presidents of both parties have undertaken in the past,” said outgoing Treasury Secretary Janet Yellen, in an official announcement on Friday.
The very idea that the world’s largest economy cannot go deeper into debt could scare investors, but keep in mind that a default and government shutdown will not happen immediately. Yellen has said the Treasury will implement “extraordinary measures” starting Tuesday, buying time until at least March 14.
One possible measure could be to deplete the Treasury General Account (TGA), the government’s operating account at the Fed used to collect taxes, customs duties, revenue from the sale of securities and public debt receipts, while facilitating government payments.
The previous debt ceiling episode of early 2023, which involved the use of TGA to cover expenses, positively impacted risk assets, including bitcoin.
This is because when the government spends the TGA balance, the cash goes into bank accounts of various entities, such as contractors, employers and others, at commercial banks. That increases the amount of reserves held by commercial banks. With more reserves, they have a better ability to lend money, which could increase lending or investment in the broader economy and financial markets.
As of Monday, the balance of the Treasury General Account was 677 billion dollars.
The chart illustrates the price of Bitcoin along with changes in the Treasury General Account (TGA) balance over the last five years.
Notably, declines in the TGA have frequently coincided with bitcoin bull runs, suggesting the inverse correlation between the two.
