Bitcoin experienced a notable rally, reaching a three-week high, following news of a debt ceiling agreement reached by the US government.
During the Monday morning Asian trading session, crypto markets showed positive momentum. The agreement to suspend the $31.4 trillion federal debt ceiling, negotiated between US President Joe Biden and top congressional Republican Kevin McCarthy, contributed to increased risk appetite in global markets, according to Bloomberg.
John Toro, head of trading at crypto exchange Independent Reserve, attributed the positive risk sentiment to the resolution of the debt-ceiling deadlock. However, he noted that long holders of cryptocurrencies faced negative carry due to high front-end funding costs, which could act as a headwind for risk assets and the overall crypto market.
Bitcoin soared to nearly $28,500 a few hours ago, marking its highest level since May 8. Although it has retraced slightly, the digital currency still stands above $28,000, representing a 4% gain for the day.
Despite the short-term rally, the broader perspective suggests that Bitcoin is undergoing a period of sideways consolidation.
The debt limit refers to the legislative cap on the national debt that the Treasury can accumulate. It determines the maximum amount of money the federal government can borrow to meet its financial obligations. Currently set at $31.4 trillion, Treasury Secretary Janet Yellen cautioned that a default was highly probable unless a deal was reached. The proposed agreement would suspend the debt limit until January 2025, effectively removing any restrictions on the government’s borrowing capacity.
The rally in the crypto market has also lifted the total market capitalization by 3% to $1.22 trillion. The inflow of $37 billion has boosted all crypto assets and introduced some volatility into a market that had been relatively stagnant in recent weeks.
Ethereum, in particular, gained 3.4% to surpass $1,900 for the first time since May 8. While other altcoins were also in positive territory at the time of writing, their gains were overshadowed by Bitcoin’s leading performance on Monday.
The removal of the debt limit, with a suspension until 2025 instead of an immediate increase, may be perceived as a positive development, as it eliminates the immediate risk of a default and provides a stable borrowing environment. This could boost market sentiment and attract investors, potentially leading to increased demand for cryptocurrencies like Bitcoin.
However, some crypto market participants may express concerns about the long-term consequences of accumulating debt without a fixed limit. Worries about inflation, economic stability, and the potential impact on the value of fiat currencies could arise, leading to increased volatility in the crypto market.