US Treasury Secretary Yellen warns: US debt will reach its limit in January 2025.
Since reaching the debt ceiling in 2023 and triggering discussions about the possibility of default, the US debt is set to reach the limit again next year.
According to (CoinDesk), US Treasury Secretary Yellen recently wrote to House Speaker Mike Johnson, warning that the US may reach its debt ceiling between January 14 and 23, 2025.
Yellen stated that once the limit is reached, the Treasury will have to take 'extraordinary measures' to reduce borrowing.
Coincidentally, during the period when the US debt reaches its upper limit, it will coincide with Trump's presidential inauguration (January 20), bringing more political and economic uncertainty to the market.
Following Yellen's letter, the risk asset market experienced a drop, with the three major US stock indices—S&P, Nasdaq, and Dow Jones—each falling about 1%, and Bitcoin also dropping about 4% from its intraday high.
According to Zerohedge, since the debt ceiling was first set at $450 billion in 1939, the US Congress has raised the limit 103 times, reflecting the continuous government spending exceeding tax revenues. Currently, the total US debt has surpassed $36.2 trillion. If nothing unexpected happens, the debt ceiling may still be raised in January next year.
Review of performance after previous increases in the US debt ceiling.
(CoinDesk) Senior Analyst James Van Straten pointed out that historically, Bitcoin has shown declines or flat performance within a few days after the last five increases in the US debt ceiling.
Source: CoinDesk US debt ceiling adjustments and their impact on Bitcoin prices.
CoinGlass data shows that Bitcoin's return rate for December is currently -4.03%, potentially marking the first month since August this year to end with a decline.
Source: CoinGlass Bitcoin monthly return rate change data, December 2024 may end with a decline.
From a cyclical perspective, since the FTX collapse in November 2022 formed the bear market bottom, Bitcoin's trend has been similar to the past two cycles. In the bull and bear cycles from 2018 to 2022 and 2015 to 2018, Bitcoin experienced significant pullbacks around the end of January, thus Straten predicts that on January 20, 2025, when Trump takes office, Bitcoin will reach the cycle bottom.
Further reading:
VanEck's top 10 predictions for 2025: BTC at $180,000, ETH at $6,000! But there may be a huge crash around that time.
The US debt limit has been a constant issue; can Bitcoin solve the US debt crisis?
In addition to focusing on Bitcoin price fluctuations, a previous article by Forbes also explored the possibility of Bitcoin resolving the US debt crisis.
(Forbes) noted that current monetary tightening policies, tax increases, or inflation control measures are no longer sufficient to resolve the US debt crisis.
With US benchmark interest rates at a high level, Trump may face the risk of spiraling US debt after taking office, which could create inflationary pressures on the dollar that are difficult to offset, leading to a gradual decline in the dollar's dominant position, and allowing other players like China to seize soft power from the US.
Can Bitcoin solve the US debt crisis? Coinbits Vice President Dave Birnbaum believes that by strategically devaluing the dollar, promoting large-scale adoption of Bitcoin, and tokenizing debt through Bitcoin reserves, we may eventually usher in an era of Bitcoin-based currency, which could help the US escape the lingering tumors of fiat policies and allow for more effective capital allocation in the market.
However, Avik Roy, president of the non-profit think tank 'Foundation for Equal Opportunity', disagrees; he believes that people have exaggerated Bitcoin's role. Even if Bitcoin reserves are held, the US still needs to implement budget reforms, though he predicts that Bitcoin reserves may help alleviate tensions in the bond market.
As nations and institutions begin to recognize Bitcoin's potential, the battle for Bitcoin reserves may intensify. The winners may be those pioneers who can secure significant positions within a sound cryptocurrency economic order.
Further reading:
Forbes 2025's top 7 crypto predictions! Major powers may layout Bitcoin, with market value expected to continue soaring?
‘Is there another default crisis? The US debt will reach its limit at ‘this time’, what impact will it have on Bitcoin?’ This article was first published in 'Crypto City'.
