Treasury Secretary Janet Yellen recently indicated that the U.S. is expected to hit its debt ceiling between January 14 and January 23, which aligns with President-elect Donald Trump’s inauguration. In a letter to House Speaker Mike Johnson, Yellen explained that once the debt ceiling is reached, the Treasury will take “extraordinary measures” to manage the nation’s borrowing until Congress takes action.
“I respectfully urge Congress to act to protect the full faith and credit of the United States,” Yellen wrote. The debt ceiling had been suspended in June 2023, but with the deadline rapidly approaching, the government must address it to avoid any fiscal disruptions.
Following the announcement, risk assets weakened, with U.S. equities seeing losses across major indices. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average all dropped around 1%. Bitcoin also experienced a decline, dropping by as much as 4% from its daily peak.
Historically, increases in the debt ceiling have been a bearish signal for Bitcoin. On the last five occasions when the debt ceiling was raised, Bitcoin saw a drop or underperformance in the following days.
Bitcoin has faced challenges this December, with a 3% drop, marking its first negative month since August. Additionally, the political and economic uncertainty surrounding President-elect Trump’s inauguration on January 20 adds another layer of concern.
The U.S. debt ceiling, established at $45 billion in 1939, has been raised 103 times as government spending has consistently outpaced tax revenue. The national debt now exceeds $36.2 trillion, according to Zerohedge.
Bitcoin’s performance also seems to be following the pattern of previous market cycles. Since the low following the FTX collapse in November 2022, Bitcoin has mirrored the trajectory of earlier cycles. Currently, with a nearly 500% return, Bitcoin is at a stage similar to previous cycles, which saw major pullbacks at this point.
Given these historical trends, there is speculation that the upcoming debt ceiling issue and Trump’s inauguration could signal a bottom for Bitcoin, following a similar pattern to previous cycles of market correction.
