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Bitcoin, gold and the debt ceiling — Does something have to give?

Bitcoin, gold and the debt ceiling — Does something have to give?

Bitcoin (BTC) has been trying to break above the $27,500 resistance for the past week, but to no avail. One of the reasons limiting Bitcoin’s upside is the risk of an eventual U.S. default as the government struggles to get the debt limit increase approved in Congress. 

Still, some analysts and investors argue that the U.S. debt ceiling standoff is merely a “show” because, ultimately, additional money will hit the markets.

Notice how MacroJack correlates Bitcoin’s digital scarcity to the next logical step: additional inflationary pressure. The stimulus measures, meaning, increasing the government debt limit, might initially sound positive because they avoid a default and favor more economic activity. However, the unintended consequences are future budget constraints as the debt interest payment increases.

Bitcoin price increases while gold breaks a 45-day low

Bitcoin’s gains above $27,000 happened while gold traded down 2.5% from May 15 to May 18, reaching its lowest level in 45 days at $1,970. Meanwhile, the U.S. Dollar Index (DYX), which measures the currency against a basket of foreign exchanges, reached its highest level in 2 months on May 18, meaning the U.S. currency gained strength relative to its global peers.

This data should not be interpreted as a vote of confidence in the government’s ability to avoid a shutdown, as the global economy would be negatively impacted in the event of a U.S. debt default. For instance, Eurozone members hold $1.54 trillion in U.S. Treasuries, followed by Japan’s $1.1 trillion, China’s $860 billion and the United Kingdom’s $668 billion.

Strong macroeconomic data explains the resilience of equities markets

While the global economy may deteriorate in the coming months, recent macroeconomic data has been mostly positive, causing the S&P 500 index to hold modest gains in May, standing merely 13% below its all-time high.

For instance, China’s retail sales grew 18.4% year-over-year in April, while the Eurozone’s first quarter gross domestic product increased by 1.3% versus the previous year. In the U.S., retail sales rose 0.5% year-over-year in April, slightly lower than expected but far from being a recession indicator.

Let’s look at Bitcoin derivatives metrics to better understand how…

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