• Treasury Secretary Janet Yellen has confirmed the US may default on payments in June, but Wall Street experts are hoping for a deal to avoid disaster.
• Ari Bergmann, founder and CTO of Penso Advisers, suggests investors hedge against the potential drain of liquidity from the banking sector that could result from a resolution.
• Bitcoin’s correlation with equities has been gradually decreasing, leading some to call it a safe-haven asset; however, its trends against stocks are not necessarily consistent.
Debt Ceiling Deal Could Trigger Liquidity Drain
US Treasury Secretary Janet Yellen has confirmed the agency may be unable to meet payment obligations by early June 2021, raising fears of major economic repercussions. Wall Street experts predict lawmakers will agree on a deal to avoid such disaster, but investors should hedge from any possible consequences. Ari Bergmann, founder and CTO of Penso Advisers, suggested that if Washington does reach an agreement, there can be an unexpected burst of Treasury bill sales which could deplete liquidity in the banking sector and possibly lead to recession.
Risk Markets at Risk
The sudden drain of liquidity can have serious effects on risk markets such as stocks. It is uncertain how this uncertainty could affect cryptocurrency markets; however Bitcoin’s correlation with equities has been reducing since mid-April 2021. Some have called Bitcoin a safe-haven asset due to its inverse correlation with stocks; however it is not consistent enough to make assumptions about its behavior in crisis situations.
Hedging for Repercussions
Due to these uncertainties surrounding the debt ceiling resolution and its implications on financial markets, it is important for investors to take measures towards hedging against any potential losses or damages that may occur as a result. Although stock prices may plummet due to lack of liquidity in the market caused by increased bond sales from Washington’s resolution deal, there exists potential for cryptocurrencies like Bitcoin to adopt safe-haven sentiments instead – though this cannot be guaranteed depending on each individual situation and investor preferences.
Cash Buffer Restocking
In order for the government to maintain its ability to pay off mounting debt and keep up with payment obligations without defaulting or going bankrupt they will need restock their cash buffer through Treasuries bills sales estimated around 1 trillion dollars by late Q3 2021 according to Bergman’s predictions. This could accelerate inflation rates across financial sectors significantly while also draining liquidity out of banking systems at an accelerated rate – resulting in higher short term funding costs and a greater likelihood of recessionary effects taking place within American economies in general terms should his predictions come true..
Though many investors hope US lawmakers can come together and resolve their differences before any major monetary disruptions take place due too defaulting on payments owed or other forms of bankruptcy occurring as a result thereof – it is always wise for them too hedge themselves against any negative repercussions that might occur regardless if such agreement is reached or not so that they can better protect their investments over time going forward into uncertain future landscapes where anything truly can happen when it comes too finance related matters like these..