The United States hit its maximum debt limit of $31.4 trillion on January 19. Treasury Secretary Janet Yellen has cautioned that if Congress fails to raise or suspend the debt ceiling, the country may face a cash shortage by June 1. Reaching the debt ceiling implies that the government cannot borrow additional funds.
Impact of The US Debt Crisis on Bitcoin
Coin Telegraph’s Marcel Pechman hosted a show that discussed the impact of the United States debt crisis. As the government rapidly exhausts its funds, there are concerns. Pechman suggests that the government might resort to displaying desperation, aiming to frighten the public into pressuring Congress for a debt ceiling increase. The risks include a potential government shutdown, default, bankruptcies, and stock market crashes as individuals rush to sell assets for cash.
In this situation, Pechman suggests that Bitcoin may experience a significant decline of 40% to 80% within a few days. However, there is one critical factor to consider: why would investors keep large cash positions once the situation has stabilized? The moment the government increases the debt and creates more money, the value of the debt immediately falls.
How Will Crypto Investors Be Impacted?
According to Pechman, this news should initially worry Bitcoin and cryptocurrency investors because the younger audience plays a significant role in driving demand for these assets.
Potential Consequences
If the United States fails to raise the debt limit on time, it could have severe consequences. Americans may not receive important government payments such as Medicare benefits, Social Security checks, tax refunds, and payments to government employees. Furthermore, the country’s unemployment rate could rise by 4%, reaching up to 9%, if the issue remains unresolved.
Moreover, it could also affect the global financial markets and the financial security of numerous families and workers. Consequences may include a decline in the country’s creditworthiness, leading to higher interest rates. Vital funding for public health, pandemic response, government food assistance, and veteran benefits could be disrupted. Additionally, investors in the stock market would face direct consequences from a potential default.