Cryptocurrencies To Watch: Week of May 15

Cryptocurrencies To Watch: Week of May 15

A Potential Liquidity Crisis and Bitcoin's Peril

With escalating fears regarding a potential cash liquidity crisis instigated by the U.S. Treasury Department, Bitcoin's price could potentially tumble to $20,000 in Q3.

US Lawmakers Reach Consensus on Debt Ceiling Increase: Implications

Bitcoin is on the brink of potential losses as we approach the third quarter of 2023. This predicament arises as lawmakers in the United States are expected to agree upon a hike in the debt ceiling.

The $1 Trillion Liquidity Gap Looms

The prospect of an increased debt ceiling implies that the U.S. Treasury could distribute new bonds to generate cash needed to fulfil its earlier commitments. Consequently, the Treasury General Account's cash reserves could potentially rise from $95 billion in May to $550 billion by June, and even further to $600 billion in the ensuing three months, as suggested by the department's recent projections.

Ari Bergmann, the pioneer of risk management enterprise Penso Advisors, predicts that the Treasury's tally will exceed $1 trillion by Q3's conclusion in 2023.

“I am apprehensive about a substantial and abrupt drain of liquidity when the debt-limit issue gets addressed, which I believe it will,” Bergmann expressed. He also commented:

“This is not something that’s very obvious, but it’s something that’s very real. And we’ve seen before that such a drop in liquidity really does negatively affect risk markets, such as equities and credit.”

Essentially, once the debt ceiling is increased, the cash used to acquire high-risk assets like stocks, Bitcoin, and cryptocurrencies will probably face downward price pressure.

The Impending Economic Impact

Bloomberg comment:

"Estimated at well over $1 trillion by the end of the third quarter, the supply burst would quickly drain liquidity from the banking sector, raise short-term funding rates and tighten the screws on the US economy just as it’s on the cusp of recession. By Bank of America Corp.’s estimate it would have the same economic impact as a quarter-point interest-rate hike."

Bitcoin Price Likely to Stay Stagnant?

These macroeconomic impediments could impede Bitcoin from regaining its annual highs of over $30,000 in the upcoming months, proposes independent market analyst Income Sharks.

The analyst speculated, "It's probable that we will oscillate between 20k to 30k and even witness an altseason." He also noted, “Unless we encounter a fresh narrative or a rally in stocks, it seems increasingly plausible that the 2024 US elections will serve as the next significant catalyst."

What Do the Technical Indicators Predict?

Meanwhile, technical analysis of the BTC price chart reveals BTC/USD consolidating beneath its 50-day exponential moving average (50-day EMA; depicted as the red wave), around $27,650.

An inability to convincingly surge above this crucial resistance zone will raise the likelihood of a retracement. Consequently, traders should brace themselves for a potential dip towards the 200-day EMA around $25,000, especially if the Federal Reserve augments by 25 basis points in June.