• In May, the US debt ceiling drama caused investors to jitter while Bitcoin (BTC) fell 7% and Ethereum (ETH) was little changed.
• On June 2, the US Senate passed legislation to suspend the debt ceiling and restrict government spending which resulted in a positive response from BTC and ETH prices.
• The Federal Reserve has reduced its balance sheet by $580 billion since April 2022 which could potentially lead to liquidity issues if the US government finds buyers for its newly-issued bonds.
Federal Reserve To Provide More Guidance on Bitcoin & Ethereum
The Federal Reserve will provide more guidance for Bitcoin (BTC) and Ethereum (ETH) in June 2023 as data on inflation rate may call for a pause in interest rate hikes. If this is the case, investors can expect BTC prices to rally to around $30,000 while ETH prices could reach up to $2,000 per token.
US Debt Ceiling Drama Causes Jitters in May
In May 2021, investors remained jittery due to heightened uncertainty surrounding the US debt ceiling drama. This affected Bitcoin (BTC), causing it to fall nearly 7% and close at $27,200 by month’s end. On the other hand, Ethereum (ETH) witnessed a 0.25% increase in price and closed at $1,875 per token.
US Senate Passes Legislation To Suspend Debt Ceiling
On June 2nd 2021, the US Senate passed legislation that would suspend the debt ceiling until early 2022 as well as restrict government spending — thus averting any potential default scenario that had investors running towards safe haven assets like the US dollar. As a result of this news, Bitcoin responded positively with an increase of 1.5% while Ether rose 2%.
Quantitative Tightening Policy Reduces Fed Balance Sheet
For months now, The Federal Reserve has been pursuing a quantitative tightening policy that has seen its balance sheet reduce by $580 billion since April 2022 — meaning fewer dollars are available than before and reducing investor appetite for riskier assets like BTC or ETH in June 2023.
Liquidity Issues Could Escalate If Government Finds Buyers For Bonds
Ari Bergmann from risk management firm Penso Advisors warned that liquidity issues could escalate if the US government finds buyers for its newly-issued bonds; this would likely drive down investor sentiment towards riskier assets such as cryptocurrencies like Bitcoin or Ethereum in turn reducing their respective token prices even further.