• US Treasury Secretary Janet Yellen confirmed the fears that the agency would unlikely meet payment obligations by early June, triggering the first-ever US default.
• Wall Street experts predict lawmakers will ultimately agree, likely averting the disaster. In addition, Ari Bergmann, founder and CTO of Penso Advisers, stated that investors should hedge for the aftermath of a possible Washington resolution.
• Bitcoin might adopt a safe-haven sentiment if stocks slump due to liquidity crunch as it has decoupled from stocks recently and correlated with gold instead.
US Default Fears
US Treasury Secretary Janet Yellen confirmed the fears that the agency would unlikely meet payment obligations by early June, triggering the first-ever US default. Wall Street experts predict lawmakers will ultimately agree, likely averting the disaster.
Investment Strategies
Ari Bergmann, founder and CTO of Penso Advisers stated that investors should hedge for the aftermath of a possible Washington resolution since government would need to restock its dwindling cash buffer to maintain its ability to pay mounting debt and flood market with treasury bill sales leading to sudden drain of liquidity from banking sector which could raise short-term funding rates and increase recession possibility.
Bitcoin’s Correlation
Throughout 2022, Bitcoin traded in unison with risk-on assets making it susceptible to macroeconomic turbulence but in mid April it started trading in inverse correlation with US stock market index S&P 500 (SPX) thus decoupling from stocks and finally correlating with gold instead.
Effects on Economy
The supply burst estimated at approximately $1 trillion by end of Q3 could quickly drain liquidity from banking sector increasing probability of recession negatively affecting markets like equities.
Safe Haven Asset?
If stock market slumps due to liquidity crunch then crypto market might go other way adopting safe-haven position as Bitcoin has decoupled from stocks recently however this might not be consistent so traders have to take note of flagship crypto carefully before investing.