US Debt Ceiling Deal Passed - What Does it Mean for Digital Assets?

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The US economy breathes a sigh of relief as lawmakers pass a bill to raise the debt ceiling, green-lighting further borrowing to fulfill outstanding debts. Following negotiations between President Joe Biden and House Speaker Kevin McCarthy, the bill promises a two-year suspension of the debt ceiling, allowing continuous inflow to the Treasury. Yet, unresolved disagreements linger, notably concerning tax hikes for corporations and high earners.

The House of Representatives, facing imminent financial shortfall, approved the bill with a 241-187 vote. While 29 Republicans opposed the bill alongside most Democrats, 52 Democrats crossed party lines to support it, in a rare bipartisan move. Senate Majority Leader Chuck Schumer signaled intent to quickly advance the bill in the Senate.

This development piques interest in the cryptocurrency sphere. With a potential trillion-dollar issuance of Treasury bills, the impact on Bitcoin and other digital assets cannot be ignored. Despite recent rallies, experts warn that an increased debt ceiling might discourage risk assets.

This development piques interest in the cryptocurrency sphere. With a potential trillion-dollar issuance of Treasury bills, the impact on Bitcoin and other digital assets cannot be ignored. Despite recent rallies, experts warn that an increased debt ceiling might discourage risk assets.

A silver lining for the crypto industry is the axing of a proposed 30% tax on Bitcoin miners, initially introduced by the Biden administration. However, with a higher debt ceiling, tighter liquidity, and looming tightening measures from the Treasury and the Federal Reserve, crypto markets may face turbulence. Liquidity, a driving force behind the recent surge in risk assets, may redirect towards the influx of T-bills, diverting funds that would otherwise have supported cryptocurrencies.

With the Federal Reserve unlikely to cut interest rates, and with subdued volatility and volumes defining current market conditions, FalconX, an institutional trading platform, warns investors of the crypto markets' susceptibility to tightening liquidity conditions. The debt ceiling deal could mark the beginning of significant changes in the crypto landscape.

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Elsewhere:

  • Crypto.com has become the 10th firm to receive a crypto license in Singapore.
  • Binance has responded to reports of job cuts, stating that it is focusing on "talent density" across its organization. Initial reports suggested Binance may have cut 20% of its staff. A spokesperson denied the numbers and clarified that the company is reevaluating its talent and expertise in critical roles and will still be looking to fill hundreds of open positions. The world's largest crypto exchange currently has 8,000 employees. Blockchain analytics giant, Nansen Research, recently announced it will be making severe workforce reductions, cutting its staff by 30%.
  • Japan's largest airline Nippon Airways has launched an NFT marketplace called ANA GranWhale NFT. In collaboration with its subsidiary ANA Neo, the marketplace debuted on 30 May with an inaugural collection featuring the works of aerial photographer Luke Ozawa. The marketplace aims to enhance the customer experience through NFT commercialization. A second collection, set to release on June 7, will include NFT conversions of ANA's first Boeing 787 aircraft, available for purchase as 3D model aeroplanes. Nippon Airways has further plans to use VR to recreate global destinations via the metaverse.
  • The United States Commodity Futures Trading Commission (CFTC) has issued a staff advisory letter to registered derivatives clearing organizations (DCOs) and DCO applicants, warning about the risks of expanding activities, particularly in digital assets. The advisory letter emphasizes compliance in three areas: system safeguards, conflicts of interest, and physical deliveries. This advisory aligns with the U.S. Securities and Exchange Commission's plans to propose a rule affecting crypto firms acting as custodians. DCO applicants include Bitnomial and LedgerX.
  • Hong Kong-based zero-knowledge Identity Oracle provider zkMe has raised $2 million in Pre-Seed funding. The funding round included participation from Circle Ventures, Spartan Group, CMS Holdings, Fenbushi Capital, NGC Ventures, Arkstream Capital, and other VC firms. Funding will go towards completing testing and onboarding customers onto the mainnet within a month. zkMe offers a protocol that allows users to selectively disclose their credentials to authorized parties while maintaining privacy and control over their digital identities.
  • Hong Kong-based qualified custodian and trust company First Digital is launching a USD stablecoin called "First Digital USD" (FDUSD). Pegged to the US dollar but regulated in Asia, FUSD will be able to execute financial contracts, escrow services, and insurance without the need for intermediaries. First Digital Labs, the subsidiary heading the stablecoin, will collaborate closely with local and overseas regulatory authorities. The stablecoin comes as Hong Kong rolls out its retail-friendly regulations on 1 June 2023.

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