The bitcoin price has climbed back to where it was before the shock collapse of the FTX crypto exchange—though these smaller cryptocurrencies have left it in the dust.
Now, as traders bet the bitcoin, ethereum and crypto price rally could be just getting started, the market is braced for U.S. Treasury secretary Janet Yellen to implement “extraordinary measures” in the aftermath of the U.S. government hitting its debt limit of $31.4 trillion on Thursday, 19 January.
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The “extraordinary measures” promised by former Federal Reserve chair Yellen are designed to avoid the financial market chaos and potential economic disaster that could be caused by the U.S. hitting its eye-watering debt limit that would raise the risk that the U.S. could default on its debts.
“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote in a letter to lawmakers last week.
However, her measures would likely tide the government over until June and could feed so-called “risk assets,” such as bitcoin, ethereum and other cryptocurrencies that have fallen sharply over the last year as the market went “risk-off.”
“[The ‘extraordinary measures’] will obviously include a limit to the new debt that can be issued, which will reduce the supply of U.S. treasuries and—all else being equal—push up the prices and lower the yields,” Noelle Acheson, author of the Crypto Is Macro Now newsletter, told Coindesk. “Lower yields imply an easier monetary environment, which is good for risk assets.”
Bitcoin, ethereum and other cryptocurrencies have rallied this year as expectations increase that last year’s period of monetary policy tightening could be coming to an end. Last week, inflation data showed the Fed’s series of harsh interest rate hikes have slowed the pace of price rises.
“Bitcoin’s recent rally came on the heels of last week’s inflation data showing that the consumer price index had decreased by 0.1% in December,” Alex Adelman, the chief executive of bitcoin rewards app Lolli, said in emailed comments.
“This new downward trend for inflation suggests that the Fed may ease off of increased interest rates and loosen monetary policy in the coming months, which will continue to boost investor confidence and interest in bitcoin.”