Debt Ceiling

The United States’ debt ceiling is one step closer to being raised, but Larry Fink says trust in the U.S. dollar is being eroded, which could be good news for Bitcoin.

Blackrock CEO Laurence Fink believes the recent “drama” around the United States debt ceiling has deteriorated global trust in the U.S. dollar, something that other analysts predict could provide some tailwinds for Bitcoin (BTC).

Fink’s comments came as U.S. House of Representatives on May 31 passed a highly-anticipated bill to lift the $31.4 trillion debt ceiling. The bill now goes to the Senate, which is expected to spend a few days debating it. The U.S. Treasury has indicated that the deadline for raising the debt ceiling was June 5. Any later, the country could begin defaulting on its debts.

314-117: The House passes the Biden-McCarthy debt ceiling agreement, raising the debt limit until 2025 and instituting discretionary spending caps for two years.

71 Republicans and 46 Democrats voted “no” on the bill. pic.twitter.com/RdU42whDd5

— The Recount (@therecount) June 1, 2023

According to a May 31 report by Reuters, Fink told the attendees of a Deutsche Bank financial services conference that he expects at least two more interest rate hikes from the Federal Reserve in the coming months, claiming that he’d seen “no evidence” of overall inflation being reduced.

“I believe we’ll have a resolution, ... but let’s be clear, the United States is jeopardizing its reserve currency status.”

Many Bitcoin advocates and cryptocurrency investors see BTC as a hedge against inflation and debt fears brought on by central banks increasing overall monetary supply.

Josh Gilbert, a markets analyst with eToro, told Cointelegraph that the debt ceiling drama brings Bitcoin into the spotlight once again, as investors may seek finite-supply safe haven assets outside the constraints of the current financial system.

“The debt ceiling deal once again highlights Bitcoin’s utility because it’s essentially a break away from the traditional financial system. Given its finite supply, it’s free from the issues that the U.S. government is facing right now,” he said.

Still, Gilbert notes that while the U.S. banking crisis and the debt-ceiling debacle highlights the inherent utility of an asset like Bitcoin, any investors hoping for current events to provide a massive surge in the value of Bitcoin should tone down their expectations.

“There’s more fear than optimism in the short term due to the uncertainty of these issues and the liquidity problems they will cause,” Gilbert said. “When the banking crisis happened, it dialed down inflation and rate hike expectations, which is why we saw Bitcoin rally.”

These sentiments were echoed by Matteo Greco, a research analyst at investment firm Fineqia International, who told CNBC that the current downward pressure on Bitcoin’s price is due primarily to investor fears of the U.S. reaching the debt ceiling.

Related: Bitcoin hodlers exited ‘capitulation’ above $20K, new metric hints

Typically when central banks raise interest rates, investors choose to take their money out of risky assets like cryptocurrencies and growth stocks.

“Given Bitcoin was so depressed in 2022, the expectations of this high-interest rate environment changing saw investors take an opportunity to buy Bitcoin at heavy drawdowns. Rate hike expectations have changed significantly so far this year and in the last few weeks,” Gilbert added.

On Gilbert's assessment, if Fink’s fears of further rate hikes come true, this could see the price of Bitcoin fall further from its current price. If the inverse happens, and the Federal Reserve pauses its rate hiking cycle in June, Gilbert says that investors can expect to see some positive price action for Bitcoin.

Bitcoin is currently changing hands for $27,161, down 2% in the last 24 hours and 6.4% over the last month, according to data from Cointelegraph Price Index.

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Update June 1, 4.07 am UTC:  Updated to reflect that the bill to raise the debt ceiling still must pass the Senate to become law.