Key Takeaways:
- The US Treasury may borrow $1.6 trillion in new debt.
- In the fourth quarter (Q4) of 2023, the Treasury anticipates borrowing approximately $776 billion.
- Between January – March 2024, the Treasury foresees borrowing around $816 billion.
YEREVAN (CoinChapter.com) — The US Treasury Department anticipates borrowing approximately $1.6 trillion in fresh debt over the upcoming six-month period, which spans this quarter and the next. Notably, on Oct. 23, the Biden Administration revealed that the fiscal 2023 budget deficit is projected to be around $1.7 trillion.
That marked a 23% increase (approximately $320 billion) compared to the $1.4 trillion deficit recorded in FY 2022.
Treasury to Borrow $776B in Q4
The Treasury Department has released the breakup of the projected numbers of its borrowing in the coming financial quarters.
For the fourth quarter (Q4) of 2023, the Treasury anticipates borrowing approximately $776 billion in privately-held net marketable debt. The US Government expects to maintain a cash balance of $750 billion by the end of December.
Notably, this latest borrowing estimate is $76 billion lower than the $852 billion figure announced in July 2023.
During the first quarter (Q1) of 2024, between January – March, the Treasury foresees borrowing around $816 billion. At the end of March, just like this quarter, the Government hopes to maintain a projected cash balance of $750 billion.
In retrospect, during the Third Quarter (July – September) 2023, the Treasury borrowed $1.010 trillion in privately held net marketable debt. As a result, it concluded Q3 with a cash balance of $657 billion.
This was slightly more than the projected $1.007 trillion, with an expected end-of-September cash balance of $650 billion.
The Treasury will release its detailed Quarterly Refunding report on Nov. 1.
Meanwhile, throughout the latter part of 2023, the US dollar has experienced a significant surge in value. It has gained against major currencies, such as the British pound, the Japanese yen, and the euro.
This, according to some investors, can lead to fiscal dominance, with inflation going over the roof.
What does this mean for Bitcoin (BTC) and the wider crypto market?
As stated above, the US Treasury Department’s continuous borrowing could indicate a scenario of fiscal dominance.
“Fiscal dominance” is a concept that suggests the continuous build-up of government debt and ongoing budget deficits can lead to rising inflation, which could override the central bank’s efforts to maintain low inflation.
In such a scenario, when the Treasury’s substantial borrowing leads to increased monetary supply and potential inflation concerns, Bitcoin (BTC) becomes a hedge for some investors.
When considered a store of value (like gold), BTC’s capped supply protects against inflation.
Moreover, reports about the Government’s fiscal responsibility and debt levels can lead to a negative sentiment in traditional financial markets. In such a scenario, decentralized assets such as BTC and other cryptos may gain more traction.
The Treasury Borrowing Advisory Committee’s latest quarterly report to Secretary Janet Yellen hints at this. According to the report, there is a “growing imbalance between the supply of and demand for US Treasury debt.”
This suggests that the markets have reacted to warnings from experts and are staying away from US Treasury bonds.
It could also be bad for the BTC
For part of 2023, the Biden Administration negotiated with the US Congress to increase the $31.4 trillion debt limit.
After many failed attempts and a prolonged deadlock, both the House as well as the Senate suspended the debt ceiling. This allowed the Government to borrow more.
However, increased borrowing means the Treasury will issue government bonds to replenish its cash reserves. One result will be the reduced liquidity in the financial system, which, in turn, will cause bond yields to rise.
With Government bonds offering high yields, Bitcoin (BTC) may not become a priority investment. Hence, if ignored by institutional investors, its price may fall.
