Since then, the debt-ceiling negotiations have been in a deadlock. Last week, one-year credit default swaps, which measure the cost of insuring against government default in the next 12 months, rose to a record high, according to the Wall Street Journal.
The current pricing in the CDS market shows a 2% probability of a default. That’s uncomfortably high for something that could be a financial calamity, Andy Sparks, head of portfolio-management research at New York-based MSCI, told the Journal.
Observers are worried the Treasury may run out of money in June.
“The debt ceiling drama is a source of short-term volatility and adds uncertainty to the market,” Laneva told CoinDesk.
Bitcoin is still seen as a risky asset and may face selling pressure if equities throw a fit at some point. Risky assets took a beating during the 2011 debt-ceiling drama when a deadlock in Washington led to the country losing its top-notch triple-A sovereign credit rating.
“Once a deal is reached, expected in the second half of the year, the Treasury will need to refill its reserves, thereby reducing liquidity and exacerbating the impact of quantitative tightening [sister of rate hikes] …. this situation may prompt the Fed to cut rates, which would ultimately benefit risk assets,” Laneva said.
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- Source: https://www.fintechnews.org/bitcoin-posts-biggest-weekly-loss-in-5-months-as-dollar-liquidity-declines-debt-ceiling-fears-return/
