The United States Congress determines how much money the US can borrow.

The federal government spends more than it receives in taxes and other revenue. It is forced to borrow massive sums of money to pay its obligations. These commitments include payments for social safety net programs, interest on the national debt, and military pay.

When the debt ceiling is approaching, lawmakers frequently demand for reductions in government spending. But raising the debt limit does not authorize any new spending. It only gives official permission the US to spend money on programs that have already been approved by Congress. Lifting the debt limit does not actually authorize any new spending.

Congress decides the debt ceiling for the United States and how much it can borrow to pay its financial obligations. The Treasury cannot issue any additional bills, bonds, or notes once the cap is reached.

Source Use slider above.

If Congress fails to act, a debt default occurs.

A United States debt default would have a large impact on traditional financial markets. Stock prices would most certainly plummet as investors would panic and sell their holdings. Bond prices would almost certainly decline as the debt's worth fell. Catastrophic effects on the world's financial system might result from the United States defaulting on its debt.

The US dollar is the main world reserve currency. A default would cause a loss of faith in the dollar. This allows alternative currencies such as the Chinese yuan to gain support as a world reserve currency.

China has been expanding its economic impact and the Chinese government has aspirations to internationalize its currency. The Chinese yuan have grown in recent years as a reserve currency. The yuan may become a more appealing alternative to the US dollar for central banks and investors.

This would be politically consistent with Beijing's long-term goal of replacing the dollar with the RMB. A United States default would certainly provide China with a fantastic opportunity to move in both politically and economically.

Implications for the Cryptocurrency Market in the Long Run

The United States accounts for 10% of all cryptocurrency users globally. The country's woes, which affect 45 million of the 420 million cryptocurrency users, pose a big risk since crypto users who lose their jobs may be forced to liquidate their holdings early.

As it stands, the cryptocurrency markets trade volume is severely depleted, with weekly volumes reaching historical lows.

The impact of a US debt default on the cryptocurrency market would be more complex. Investors may flock to cryptocurrencies as a safe haven, driving prices up. Or, the tension on traditional financial markets may result in a decline in overall demand for cryptocurrencies, causing prices to plummet. Furthermore, a US debt default could result in further regulation of cryptocurrencies as nations seek measures to stabilize their economies.

The long-term implication of a US debt default on the cryptocurrency markets are difficult to anticipate. We are entering unknown territory because the US has never defaulted on its debt obligations.
Ideally, cryptocurrencies would emerge as a stable and trustworthy alternative to established financial markets. Increased regulation and decreasing demand, in the worst-case scenario, might hinder the bitcoin market's growth.

There may be a silver lining for cryptocurrency. A financial default might have a positive impact on the bitcoin and cryptocurrency markets by stimulating innovation and adoption. In the case of a default, investors may become wary of established financial markets. Also, look for alternate investing alternatives, such as bitcoin.

Money market funds, which are considered low-risk investments, are already enjoying historic asset growth.

Cryptocurrencies like Bitcoin (BTC) may thrive in such a setting. The resulting inflow of capital could result in a rise in Bitcoin prices.

An increasing demand for cryptocurrencies may result in a rise in their value and further accelerate their adoption.

Furthermore, as the desire for a more secure and trustworthy financial system grows, a US debt default could hasten the creation of new and innovative financial products such as decentralized exchanges and stablecoins. This could result in the total cryptocurrency market growing.

To conclude...

The potential benefits of a US debt default for the Bitcoin and the cryptocurrency markets would need to be carefully evaluated against the risks and uncertainty that it could entail.

In short, while a default may spur more innovation and acceptance of cryptos, if the wider economy suffers, this would be a victory that comes at a great cost, perhaps making the ordeal to win not worth it.

It’s still very unlikely that the U.S. defaults on the national debt. But if it does, the price of bitcoin is going to be far down the list of almost anyone’s concerns. Janet Yellen was downplaying it when she described the consequences as “severe hardship for American families.” A U.S. default would trigger the domestic economic equivalent of a nuclear carpet bombing. - Source

References:
https://home.treasury.gov/
https://www.zippia.com/advice/cryptocurrency-statistics/#
https://www.nytimes.com/topic/subject/federal-debt-ceiling-national-debt
https://en.wikipedia.org/wiki/Renminbi
https://cointelegraph.com/news/u-s-debt-ceiling-crisis-bullish-or-bearish-for-bitcoin
https://www.fxstreet.com/cryptocurrencies/news/bitcoin-sees-capital-inflow-as-biden-mccarthy-agree-to-raise-us-debt-ceiling-202305280834
https://www.nytimes.com/2023/05/02/business/economy/us-debt-ceiling.html#
https://www.cryptovibes.com/blog/2021/10/11/is-the-us-debt-ceiling-crisis-a-catalyst-for-cryptos-eventual-decoupling/
https://www.barrons.com/articles/bitcoin-ethereum-price-crypto-markets-today-429ce626
https://www.coindesk.com/consensus-magazine/2023/05/17/what-does-the-debt-limit-showdown-mean-for-bitcoin/
https://ecency.com/post/@leoglossary/leoglossary-main-menu

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