Treasury Secretary Janet Yellen has warned that the U.S. is likely to hit its debt ceiling between January 14 and January 23, around the time of President-elect Donald Trump’s inauguration. In a letter to House Speaker Mike Johnson on Friday, Yellen stated that the Treasury will begin taking “extraordinary measures” to manage borrowing once the limit is reached.
“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 ceiling until January 1, 2025.
The news contributed to a downturn in risk assets, with U.S. equities seeing declines just before the letter was made public. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average each dropped around 1%, while Bitcoin fell by as much as 4% from its intraday peak.
Historically, raising the debt ceiling has been seen as a negative signal for Bitcoin, with the cryptocurrency typically experiencing a drop or underperformance in the days following such events. This trend has occurred on the five occasions when the debt ceiling was raised in the past.
Bitcoin has had a rough December, currently down 3%, and is on track for its first negative month since August. Adding to the uncertainty is President-elect Donald Trump’s inauguration on January 20, which falls between the dates Yellen identified as critical for the debt ceiling issue.
Since its establishment in 1939, Congress has raised the debt ceiling 103 times as government spending has continued to surpass tax receipts. The current U.S. national debt exceeds $36.2 trillion, according to Zerohedge.
Bitcoin’s price performance is also showing parallels to past cycles. Since the low following the FTX collapse in November 2022, BTC has followed a similar trajectory to previous cycles. With nearly a 500% return, Bitcoin is now at a point similar to the previous cycles in terms of price movement. This historical pattern is not necessarily bullish, as the 2018-2022 and 2015-2018 cycles both saw significant pullbacks at this stage.
It is possible that Trump’s inauguration on January 20 could mark a bottom for Bitcoin, as has been the case in previous cycles.
