Bitcoin, Gold and the Debt Ceiling – Should Something Be Given?

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

Still, some analysts and investors argue that the US debt ceiling impasse is just a “show” because additional money will eventually enter the markets.

The talks about the US debt ceiling are all show.

They’re going to push the dollar into oblivion.

You must own hard assets to protect your wealth.#Bitcoin is the fastest horse in the race.

— MacroJack (@macrojack21) May 17, 2023

Notice how MacroJack correlates Bitcoin’s digital scarcity with the next logical step: additional inflationary pressures. The stimulus measures, i.e. raising the government debt limit, may initially sound positive as they prevent default and promote more economic activity. However, the unintended consequences are future budget constraints as debt interest payments increase.

Bitcoin price rises as gold breaks a 45-day low

Bitcoin’s gains above $27,000 happened as gold fell 2.5% from May 15 to May 18, hitting a 45-day low at $1,970. Meanwhile, the US Dollar Index (DYX), which measures the currency against a basket of foreign currencies, hit a 2-month high on May 18, meaning the US currency gained strength against its global counterparts.

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 adversely affected in the event of a US debt payment. For example, Eurozone members have $1.54 trillion in US government bonds, 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 equity markets

While the global economy could worsen in the coming months, recent macroeconomic data has been mostly positive, leading the S&P 500 index to make modest gains in May and only 13% below its all-time high.

For example, retail sales in China grew 18.4% year-on-year in April, while eurozone gross domestic product increased 1.3% year-on-year in the first quarter. In the US, retail sales rose 0.5% year on year in April, slightly lower than expected but far from a recession indicator.

Let’s take a look at Bitcoin derivatives statistics to better understand how professional traders are positioned in the current market environment.

Bitcoin margin and futures favor bullish momentum

Margin markets provide insight into how professional traders are positioned, as they allow investors to borrow cryptocurrency to leverage their positions.

For example, OKX offers a margin lending indicator based on the stablecoin/BTC ratio. Traders can increase their exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only bet on the fall in the price of a cryptocurrency.

The chart above shows that the margin lending ratio of OKX traders increased between May 12 and May 17. Such data coincides with Bitcoin’s price recovery over the period, though it’s not troublesome as the current 31 margin lending ratio is approaching the 30-day average.

Investors should also analyze the long-to-short metric of BTC futures, as it rules out externalities that may have only impacted margin markets. There are occasional methodological discrepancies between exchanges, so readers should follow changes rather than absolute numbers.

Despite Bitcoin falling 8% since May 5, professional traders recently increased their bullish positions to their highest level in two weeks, according to the long-to-short indicator.

For example, the ratio for OKX rose from 1.08 on May 12 to 1.25 on May 18. Meanwhile, at crypto exchange Binance, the long-to-short ratio rose from 1.14 on May 12 to the current 1.25.

Related: Bitcoin price cap below $26,000 possible as Friday’s BTC options expiration approaches

Bitcoin bulls are in a better position as there is weak demand from short sellers and no signs of excessive buyer leverage. In other words, Bitcoin’s market structure is bullish, so the odds are favorable for a rally towards $28,000 if the US debt ceiling holds.

This article is for general information purposes and is not intended to and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain any investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.