U.S. Treasury to Implement Extraordinary Measures, Potentially Boosting Risk Assets Including Bitcoin
The ongoing U.S. debt ceiling debate has resurfaced, but past trends suggest that it could have a favorable impact on risk assets, including bitcoin (BTC).
The U.S. government is set to hit its $36 trillion debt ceiling on Tuesday, which limits the amount the government can borrow to fund its operations. This restriction raises concerns about the potential for the federal government to struggle to meet its financial obligations.
Outgoing Treasury Secretary Janet Yellen addressed the situation in an official statement, explaining, “The debt limit does not authorize new spending, but it creates a risk that the federal government might not be able to finance its existing legal obligations that Congresses and Presidents of both parties have made in the past.”
Although the idea of the world’s largest economy being unable to borrow more funds could cause some investor anxiety, there is no immediate risk of a default or government shutdown. Yellen stated that the Treasury would begin implementing “extraordinary measures” starting on Tuesday, which could buy time at least until March 14.
One of these extraordinary measures could involve utilizing the Treasury General Account (TGA), the government’s operating account at the Federal Reserve, which collects taxes, customs duties, proceeds from securities sales, and public debt receipts. The TGA is also used to facilitate government payments.
In the past, the TGA’s drawdowns during previous debt ceiling episodes, such as in early 2023, led to positive effects on risk assets, including bitcoin. When the government uses the TGA balance, the funds are transferred to commercial bank accounts belonging to contractors, employers, and other entities. This inflow of cash increases the reserves held by commercial banks, enhancing their ability to lend and potentially driving investment and lending in the broader economy and financial markets.
As of Monday, the balance of the TGA stood at $677 billion, and historical data shows that Bitcoin’s price has often moved in tandem with changes in the TGA balance, suggesting an inverse correlation between the two.
