- The foreseen monetary tightening may reduce inflation, but it could also halt the ongoing bullish momentum of Bitcoin.
- The slow progress in the creation of a BTC reserve could have a detrimental effect on its price, too.
As the US remains the key catalyst of cryptocurrency market sentiment, it could also be the one that could halt or slow its advance. This comes despite the efforts of President Donald Trump to introduce positive reforms to the digital assets industry.
Monetary Tightening Does Not Bode Well for Bitcoin
Bitcoin (BTC)—as with any other class—is reactive to monetary policies. Sentiment within its sector is particularly driven by events affecting the global reserve currency, the US dollar. Hence, the expected tightening in the fiat money’s liquidity could postpone Bitcoin’s expected climb to all-new heights within the foreseeable future.
Arthur Hayes, co-founder and former CEO of BitMEX, recently identified key events in the US that could put the brakes on the ongoing Bitcoin bull cycle. Borrowing some insights from Swiss investor and strategist Felix Zulauf, he indicated that the US fiscal deficit is declining. Meanwhile, the Treasury General Account (TGA), the government’s operating account, has increased its cash balance amid the national debt surpassing the US’ self-imposed debt cap of $36 trillion. In addition, he noted a reduction in foreign loans by US banks.
A decline in fiscal deficit is definitely a good economic indicator. It could hold the key to cutting down inflation based on the Economic Letter of the Federal Bank of San Francisco. However, its aggressive implementation could also mean less liquidity within the financial system.
In response to Hayes, Anndy Lian, author of several books about blockchain technology, stated that tighter control on the monetary supply could trigger an economic slowdown and higher borrowing costs. Moreover, it could lead to a more challenging environment for risk assets like crypto.
It’s worth noting that the previous bull cycles have been boosted by fiscal policies that resulted in more capital inflows in risk assets, such as Bitcoin and other cryptocurrencies. The looming scenario, including the increasing TGA balance and more restrictive foreign loans, could curb this effect.
Slow Progress in Proposed National Bitcoin Reserve
US AI and Crypto Czar David Sacks earlier confirmed that they are now studying the potential adoption of Bitcoin into the national reserve. Although the news signals significant progress in Trump’s campaign promise, many in the crypto community regard the latest developments to be slower than they initially expected.
For them, Trump’s win was almost a guarantee of the plan’s execution, considering that Senator Cynthia Lummis has already initiated the groundwork in Congress. Sack’s recent statement that they are still in the initial stage of studying such a prospect didn’t sit well with several Bitcoin advocates.
Bianco Research President Jim Banco echoed the same thoughts, saying, “Wait, Trump said he would do a BTC Reserve, not promise to ‘evaluate it.’” He added that Washington tends to use the term “evaluate” or “study” when it has not fully bought into the idea yet.
Trump’s executive order during his first day in office mentioned the creation of a “digital asset stockpile.” Still, some analysts interpreted the lack of reference for a Bitcoin reserve as a sign of hesitance in its execution.
