Bitcoin Drops as US Treasury Warns It Will Hit Debt Ceiling in Two Weeks

The U.S. is likely to hit the maximum it's legally allowed to borrow at some point between Jan. 14 and Jan. 23, Treasury Secretary Janet Yellen

The United States is expected to reach the maximum amount it is legally permitted to borrow sometime between January 14 and 23, according to a Friday letter sent by Treasury Secretary Janet Yellen to House of Representatives Speaker Mike Johnson. The Treasury will then take "extraordinary measures" to reduce borrowing.

"I respectfully urge Congress to act to protect the full faith and credit of the United States," she wrote.

In June 2023, Congress suspended the debt limit until January 1, 2025.

Before the letter was made public, risk assets declined. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average all lost around 1% as U.S. equities fell. Bitcoin dropped as much as 4% from its intraday high.

After the debt ceiling was raised on the past five occasions, the largest cryptocurrency has typically fallen or underperformed in the days that followed.

This December has been poor for bitcoin, which is down 3% and on track for its first red month since August.

The inauguration of President-elect Donald Trump will take place between the dates mentioned by Yellen, adding to the political and economic uncertainty.

According to Zerohedge, Congress first established a debt limit of $45 billion in 1939 and has raised it 103 times as government spending continues to outpace tax receipts. The national debt of the United States now exceeds $36.2 trillion.

Another factor influencing the bitcoin price is its similarity to prior cycles. BTC has been tracking the previous two cycles since the cycle low during the FTX collapse in November 2022.

At this point in the cycle, it is now just short of a 500% return, which is comparable to the two prior cycles at the same stage. It bodes ill for the bulls.

Both the 2018-2022 and 2015-2018 cycles saw substantial drawdowns at this point in the cycle, which is denoted by the red box in the chart below. It's possible that Trump's inauguration date of January 20 will mark a bottom for bitcoin.