The political rivalry in Washington, D.C. could cause prices of Bitcoin (BTC) to drop again. Unless an agreement is reached to increase the debt ceiling, the US federal government may be shut down. The reaction of the crypto community suggests that there is no reason to panic.
The Senate Banking Committee was notified Tuesday by Janet Yellen, US Treasury Secretary. She warned that the US federal government could run dry of money by October 18 unless Congress takes swift action to increase the debt ceiling.
“It would have disastrous consequences for the American economy, global financial markets and for millions of workers and families,” Yellen stated to senators.
She warned that even a flirtation with default, which would be the US government not paying its creditors’ payments on time, could cause financial market turmoil.
The US government has set a debt ceiling that limits how much money it can borrow. This limit was established for the first time in 1917 and has been increased several times over the years. The debt ceiling has been a political issue for decades.
Stocks and crypto sentiment have already been affected by the current concerns about the debt ceiling, the possibility of a government shutdown and even the small chance that there will be a default.
Stocks ended Tuesday sharply lower on Wall Street with the S&P 500 index experiencing its largest one-day percentage drop since May.
Similar to the stock market, major cryptoassets such as bitcoin and Ethereum (ETH) were also down. However, they were less than the stock markets.
It appears that the number one cryptocurrency has found support at USD 40,800, where it bounced Wednesday due to improved market sentiment.
This week’s debt ceiling fears follow concerns about possible central banks rate increases and tapering last week. There are also concerns regarding a possible collapse in Chinese property development giant Evergrande that were raised shortly before.
Reddit’s Reddit’s subreddit r/CryptoCurrency discussed the latest issue keeping investors awake at night. However, many crypto community members seemed to agree that the position is primarily a form “political theatre” that allows politicians to “keep pretending that they are useful”
It’s a political farce that congress creates a budget for the president to execute. The president then requests money. When the [tax base] doesn’t suffice, congress is shocked and tells the president that he needs more money. The same story every time,” responded one user.
They’ll shut down parks and other public places. People will say, “Oh no!” They will reach a compromise which only kicks it down. Both sides will blame each other while claiming they were not weak and only compromised for the benefit of the people. It has happened several times,” commented another user.
While the debt ceiling may be one of the darkest clouds on the horizon it is not the only thing to watch.
Charlie Silver, CEO at the crypto-focused online advertising company Permission.io claims that October has been historically “the most dangerous month in the year” for stocks markets. This could also have implications for crypto markets.
Silver stated that “Crypto oscillates between support and resistance,” and that the market “waits for regulatory clarity in the US” and “remains open to central bank moves regarding the Chinese debt crisis.”
Despite this, the CEO said that crypto is showing positive signs, “considering how many new participants” are entering the space.
BTC traded at USD 42,375 at 10:30 UTC. This is a 1.2% increase over the previous 24 hours. Ethereum traded at USD 2,925, however, and was unaffected by the changes. BTC is up almost 5% over the past seven days while ETH gained nearly 7%.