Senator Cynthia Lummis On US Debt Limit Raise: “Thank God For Bitcoin”

  • “Thank God for Bitcoin…that transcends the irresponsibility of governments,” Senator Cynthia Lummis said.
  • Sen. Lummis’ remarks came in response to the Senate’s approval of a bill to increase the U.S. debt limit by $480 billion.
  • “Time and again…presidents of both parties have run up the debt irresponsibly with no plan to address it.”

Bitcoin is a blessing of God amid irresponsible policies at the government level, said Senator Cynthia Lummis in a speech to the Senate. The Senator provided her perspective on how Bitcoin can help people stay immune to “irresponsible” monetary policies.

“One of the reasons I became so interested in non-fiat currencies is because they’re not issued by a government. Bitcoin is not issued by a government.”

On October 7, the Senate approved a bill to help the U.S. avoid a default on its debt in the next few weeks. The agreement enables an increase of $480 billion to the debt limit, “a sum the Treasury Department estimates will allow it to pay bills until December 3,” CNBC reported.

“Time and again, in the U.S. house of the senate, presidents of both parties have run up the debt irresponsibly with no plan to address it,” Lummis added. “So thank God for Bitcoin…that transcends the irresponsibility of governments, including our own.”

Lummis also warned of the dangers of embarking upon irresponsible debt management, including the dollar’s devaluation. She said that both parties are “truly irresponsible” if they fail to act right and let the dollar decline, in which case Lummis would like to give Americans an option.

“In the event that contingency occurs, I want to make sure that non-fiat currencies, not issued by governments, not beholden to political elections can grow, allow people to save, and be there in the event that we fail at what we know we have to do,” the Senator claimed.


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The Macroeconomic Implications Of Evergrande For Risk Assets And Bitcoin

I have spent my career in financial markets, focusing on risk analysis and trading with a viewpoint that is honed through the prism of credit. I believe credit markets to be the most important, most informed, and unfortunately the most misunderstood of the various risk asset silos.

Credit analysts are pessimists by nature. They always ask, “How much can I lose?” as opposed to equity analysts, who seem to believe trees grow to the moon and growth can accelerate forever. Credit analysts prefer math, downside sensitivity analysis, priority of claims certainty, and can calculate bond price moves — on the fly — from changes in credit spreads.

I too prefer statistics to subjective analysis. Math is the base layer of language, yet many investors are illiterate in this capacity. While this leads to tremendous capital structure arbitrage opportunities for credit-focused hedge funds (my previous life) who trade credit against the equity and equity derivatives of a given company, it is often the retail stockholder who gets used as the cannon fodder.

That is life. Play stupid games, win stupid prizes. If the ill-informed investor does not understand credit and bonds/pricing yet invests in the (subordinate claim) equity of a levered company, he/she is exposing themselves to a potential world of hurt.

With that disclaimer out of the way, I would like to focus on the current Evergrande situation in China and what it means for global risk assets. I will examine the potential effects of contagion in the domestic credit markets in China, contagion in risk assets globally, as well as some potential macroeconomic concerns. I also conclude that the credit contagion implications for sovereign credits is increasing, and that BTC is the perfect insurance against declining fiat credit quality.

Don’t overthink this. BTC is sovereign credit insurance (long volatility) with no counterparty risk.

Size Of Potential Default

In the context of recent meaningful global defaults, the Evergrande debt is not overly concerning. Total liabilities at Evergrande are $300 billion, of which $200 billion is pre-payments for housing from Chinese citizens. The balance of the exposure is debt, both onshore bank and public debt, as well as offshore debt to international investors. Compare this to Lehman Brothers’ default $600 billion of on-balance-sheet exposure, as well as multiples of that in off-balance-sheet derivatives and credit default swaps (CDS). Goldman has recently calculated potential off-balance sheet liabilities for Evergrande at $155 billion (one trillion yuan) in “shadow-banking” exposure. This is worrisome because this is more like a Lehman moment but again, it is not catastrophic in the global context.

The contagion risk at Lehman was easy to understand, as the whole system was on the brink due to counterparties whose insurance contracts (CDS contracts) were not able to be claimed. Remember, the rumor was that if AIG was allowed to fail, Goldman would fail too since it had purchased so much insurance from AIG in order to lay off its exposures (both client exposures as well as principle exposure).

Another global default which had macro implications was the Greece restructuring in 2012. That was on about $200 billion in debt, and while there were trade claims and other non-debt obligations to consider, the overall restructuring was small compared to Lehman, but still two times as large as Evergrande (prior to adjusting for economic growth).

Therefore, as the size of a default goes, I feel this should largely be contained to the Chinese high-yield (HY) market and other related credit markets. Total global debt is $400 trillion. I know that I am old enough to remember when a $100 billion default in public debt was meaningful (as with the “LDC debt crisis” in 1988, for example) but with all of the growth in debt, the truth of the inescapable global debt spiral, and the liquidity that the global central banks are flooding into the market, I believe the contagion risks are low. Not zero, but certainly nothing like a Lehman moment. The shadow banking concerns should be contained in China and in banks with Asian credit exposure, so watch bank certificates of deposit for names like Standard Chartered and HSBC for indications it is spreading.

Reaction In Chinese HY And IG markets

Looking only at the Chinese HY market, one can feel the pain experienced in the price action of the bonds. It would more accurately be defined as the Chinese “distressed debt index,” since the market is largely made up of property developers and, of those developers, Evergrande accounts for about 15% weight in the index. The index yields over 14% (compared to the U.S. HY index at about 4%).

However, there are some meaningful considerations, including some bond math. Firstly, the U.S. HY market is far more diversified by industry, has far more diversified and experienced players, and has a true distressed debt buyer group that lives under the HY market. In the event that a credit becomes stressed or distressed, U.S. distressed debt buyers swoop in to fill the buyer gap from traditional “going concern” HY buyers. The Chinese HY market is younger, is far less diverse, and far less experienced in terms of a learning history.

The bond math consideration is important, too. When debt trades at less than 50 cents on the dollar (Evergrande debt is at 25 cents on dollar), a calculation of yield-to-maturity (YTM) makes little sense and provides a garbage comparison. The debt is no longer trading to maturity value (100 cents to the dollar) but rather to a recovery value. In other words, in the case of Evergrande debt trading at 25% of claim, the buyers are calculating a return on recovery value, rather than the internal rate of return (IRR) or YTM on the cash flows, including a 100% principal repayment. So, looking at the 14% YTM of the Chinese HY market is sending out a flawed comparison.

In contrast, the investment-grade (IG) corporate debt market in China has held up rather well. Credit spreads have actually narrowed, reflecting no contagion concerns. One could argue that the IG market views the systemic risks as being reduced. I would not draw that immediate conclusion, but suffice to say that the IG market would be widening meaningfully if there were true systemic concerns.

Longer-Term Contagion Risks

The true contagion risks in China may be more psychological. Confidence in land as a store of value may be impacted. Real estate has always been an important investment in a portfolio in China and over one million Chinese consumers may lose a large portion of their prepayments. The trickle-down impacts include a slowing domestic economy (land sales accounted for 8% of GDP) together with reduced consumer confidence. Lower consumer consumption would be a natural impact.

There was also a noticeable widening of default insurance on five-year China CDS. In the eyes of the default insurance markets, China default risk is now more reflective of a BBB-rated credit rather than the single-A S&P rating. This is important, since the world’s second-largest economy is trending toward a junk-rated credit. One more rating downgrade (in the eyes of the market, to BB) and it is now a HY borrower. Wow!

Finally, it will be very interesting how China deals with the domestic claims versus the international lenders. I know how a capitalist court would deal with this situation. There is precedent in the West and that gives the distressed debt investors a well-worn roadmap. The CCP is a different animal and its “messing” with the priority-of-claims model that is law in the West may substantially increase its borrowing costs when international investors decide to avoid the Chinese exposure.

Also, think of China banning Bitcoin mining and how that is actually a gift for the West and the true flow of global capital. These two events may lay the groundwork for the further centralization (and control/abuse of capital) by the CCP versus the decentralized model that used to be embraced by freedom-loving Western countries. Markets are generally smart over the long term. In my opinion, there will certainly be long-term consequences.

How Does Bitcoin Fit In?

I have long argued that Bitcoin should be considered default protection on a basket of fiat currencies. If the second-largest economy is trading as a junk borrower in the eyes of the market, then the value of the insurance provided by bitcoin should increase as other, less important countries and credits are also dragged into the vortex of declining sovereign credit quality.

This is the far bigger issue in my mind. As noted in my paper (published by Bitcoin Magazine in April and linked here), the intrinsic value of BTC based on CDS of a basket of sovereign credits was over $150,000 per coin prior to the recent widening of CDS spreads. Since the intrinsic value of BTC increases when the spreads widen, that intrinsic value has now increased.

Some readers will say, “Well Foss, your thesis doesn’t hold any water then. BTC is acting like a risk-off asset.”

To which I respond, “The market for BTC still has its training wheels on. The market doesn’t understand that BTC is a long volatility position. When you are short credit, you are long volatility. And BTC is a short credit position on a basket of sovereigns.”

Proceed accordingly. BTC is the best asymmetric investment opportunity (and hedge) I have seen in my 32 years of managing risk. Fiat is the ponzi.

“But Foss, they can print money to pay down the debt!”

This is true, but in a debt spiral, debt never matures, it needs to roll over. And when an auction fails and the debt does not roll, the receding tide will show who has been swimming naked.

All fixed income investors need to own BTC as insurance against inevitable fiat debasement (bonds are just a fiat contract), as well as declining sovereign credit quality.

This is a guest post by Greg Foss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.


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For Addicts And Debt Slaves, Bitcoin Is A Bright Light In A Dark Place

A former drug and alcohol addict discusses our addiction to fiat money, debt slavery and how Bitcoin inspires him for the future.

Watch This Episode On YouTube

Listen To This Episode:

Although the general sentiment of the Bitcoin community and that of Bitcoin Magazine is one of hope and optimism, the real world is often not so straightforward.

One of our recent posts discussed the reality of addiction, and how this relates to the fiat world and debt. I believe that this is an important topic that touches nearly everyone. With drug and alcohol addiction widespread in the United States, almost everyone knows a friend or family member impacted. Addiction can also be found, in a way, in our fiat monetary system and the debt cycle it proliferates.

OtterBTC, a former durg and alcohol addict himself, and I discussed both of these topics in this podcast episode, so be sure to give it a listen, check out his article and read our interview below.

What’s your Bitcoin rabbit hole story?

I was fully introduced to Bitcoin during the mania of the bull run in late 2017. I bought a little coin and then watched the price fall into the bear market of 2018. At some point, I wanted to know more.

I started trying to find content in the space where I could learn. I remember listening to a podcast with Tim Ferris, Naval Ravikant and Nick Szabo and then another where Wences Casares was interviewed. I fell down the rabbit hole hard. I felt like a veil was being lifted from my eyes. I had previously been interested in gold and silver coins as valuable collectables, but this was different. The implications of widespread bitcoin adoption as a benefit to every person on the planet has kept me enamored ever since.

How has Bitcoin changed your life?

I am more hopeful and optimistic for the future today because of bitcoin. Even in all of the chaos around us, I still tend to have a glimmer in my eye knowing that bitcoin exists and there are advocates everywhere and more people being enlightened every moment. I always intuitively believed that centralized control over anything valuable — money, goods, services or even humans themselves, was the cause of much oppression in the world, but I never dug deep enough to understand the mechanisms behind how this control was wielded. And it all starts with the money.

My eyes are more open today. I take even more responsibility for my reaction to life today and I absolutely prefer to verify before trusting in what any person or institution puts forth as fact. Show me the incentives…

Your recent piece on addiction, fiat, debt and bitcoin was really interesting. Could you discuss some of the parallels you see between these things and what led you to write this article?

As I lay out in the article, our global economy is addicted to cheap fiat debt in an unsustainable way. The consequences cause huge distortions in markets that have rippling effects across society. Much of the populous acts with the objective of fulfilling high time preference (short-term gratification) goals. We are ever in fear that the prices of the things we want will go up, therefore we must get them now, so we take on debt to acquire such things.

Being in debt can be perceived as another form of slavery. Being underneath debt can feel like getting on a hamster wheel inside of a cage, where you stay active but do not realize your main objective is only to service the liability that you’ve been saddled with. This is a soul-sucking endeavor and leads to the degradation of the individual.

I was once enslaved to drugs and alcohol. It’s a desperate and demoralizing place to be. At many points I was only living to service the spell of the addiction that I was under. I had a moment of grace and took the opportunity to change my life, which I’ll forever be grateful for.

In writing the article, I wanted to share a bit of my story and give back and contribute a perspective to the community. Societal ills affect us all. Misinformation around money and the negative effects of debt seem to be shrouded in ignorance similarly to the way we as a society address drug/alcohol addiction and its associated stigma. I’d love to help shed light on both.

What are you most looking forward to in the Bitcoin space?

I’m looking forward to more widespread adoption and education. Millions more “lightbulb” moments. I want more people to feel their minds being blown as they interact with bitcoin, send their first transaction, and watch their savings increase over time. I’m looking forward to seeing people place more value on their time and in turn, spend that time with their families or doing what they love.

Price prediction for the end of 2021, and the end of 2030?

I’d say we see $100,000 before January 1, 2022. (I’m purposefully being bearish so as to not have any dashed expectations, haha.) Easy $1.5 million bitcoin price by 2030.


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The Issuance of a $1.5B Junk Bond by Coinbase Indicates Investors are Eager to Join Crypto

Coinbase’s sale of a junk bond with a total value of $1.5 billion shows that cryptocurrencies have gradually become mainstream.

Coinbase is expected to sell $1.5 billion in bonds. However, Moody’s Investor Services, a world-renowned credit ratings institution set Coinbase Global Inc.’s debt issuer rating to non-investment grade or junk grade mainly due to the uncertain regulatory environment and future competition. 

Several analysts from Moody’s Fadi Abdel Massih, Donald Robertson, and Ana Arsov wrote in a report on Tuesday:

“Coinbase’s financial profile suggests investment-grade credit strength, but for now the uncertain regulatory environment and fierce competition offset these strengths.”

Coinbase sells two types of bonds, 7-year bonds due in 2028 at a coupon rate of 3.375% and 10-year bonds due in 2031 at an interest rate of 3.625%.

An industry research analyst from Bloomberg said Julie Chariell said that:

“The strong demand is clearly a big endorsement by debt investors.”

This bond issuance is a favourable event for the entire cryptocurrency industry and Coinbase. This product allows investors to directly participate in the benefits of cryptocurrency without investing in cryptocurrency and earn interest from it.

Since the bonds are one grade lower than the investment grade, Coinbase did not get the lowest borrowing cost. Generally speaking, the average yield of similarly-rated bonds is about 2.86%, which is lower than the interest rate of more than 3% this time.

Coinbase is not the first U.S. marketer to issue cryptocurrency-related bonds. As early as June of this year, MicroStrategy Inc. announced that the company plans to offer $400 million of senior secured notes to qualified institutional buyers to raise more capital to make more Bitcoin purchases.

As reported by Blockchain.News yesterday, Nasdaq-listed cryptocurrency exchange Coinbase Global Inc has announced its plans to raise new capital by issuing $1.5 billion aggregate principal amount of its Senior Notes to potential investors.

Image source: Shutterstock


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Bitcoin And Addiction: A Life In (Fiat) Recovery

Instead of asking, why am I an alcoholic? I prefer to ask, how? As in, how did I become as hopeless as I once was and then how did I miraculously — slowly — progress to where I am today? What were the actions I took, the motivations for those actions, and the destructive patterns that arose and shaped the incentive structure for my reality? Most importantly, now that I am years into recovery and free of the bondage of active addiction, I constantly have to ask: What am I doing to continue to live freely in this new way? What will I do, what actions will I take, through service, self-care and human communion to continue on this more enlightened path?

I’ve stopped caring about why I became an alcoholic. The laundry list of causes looks the same for many of us. I started with family, genetics and some circumstances and all of that was just a roll of the dice. What’s important to me is how I reacted to all of that and how I continue to react to life today.

I was often motivated by fear before sobriety. Today, I have to be on alert for when a fearful story pops up in my head: “Some of the worst things in my life, never even happened.” — Mark Twain.

My alcoholism is clearer to me now, but what I’ve discovered more recently is that I didn’t know I had another addiction: fiat money.

I’m the “bitcoin guy” in my group of family and friends. Random conversations and text threads about current events regularly end up with me inserting a casual and sometimes not so casual, “Bitcoin fixes this,” or “Better buy some more bitcoin,” or “Good job on cutting out those costs … more bitcoin.”

When my brother sends me an article about how meat prices are skyrocketing and another about how lumber costs are going through the roof, I can’t help that, after some exchange, I inevitably conclude my assessment with: “It’s all a signal. Put your time and energy in something that can best store value across space and time — buy more bitcoin.”

We are operating in a debt-based global economy that acts very much like a chronic alcoholic/addict. We get increasingly into more debt, individually and collectively, and in order to service these debts, the powers that be would rather print money to service their aim, instead of allocating tax revenue effectively and practicing austerity. With the alcoholic/addict, abstinence is painful. If the world were to transition to a more sustainable monetary system, it would almost certainly come with pains too.

It is an unpopular decision in the nervous system when all of the sudden you deprive it of the substance it has relied on. If the populace is one big nervous system, then we have been living on debt and cheap money in an arguably unsustainable way. When an alcoholic/addict decides to get clean and sober and cut themselves off from the destructive behavior and substances they have been relying on, it can seem catastrophic for them. And in many cases, they need to be medically assisted in their detox or the process can be fatal. After the dust settles and their body is no longer dependent on the chemicals, the real work usually begins.

The incentive for the individual alcoholic/addict to get clean and sober is freedom from the disease. When they achieve this, they reap the benefits. Family and friends usually benefit enormously as well. Communities and society as a whole benefit from this.

Now let’s look at the incentives for the administrators of a monetary system, central bankers and governments. What are their incentives to administer a new, more fair monetary system? I’d argue that they have no incentive to level the playing field and bring up the disenfranchised — those most affected by modern inflationary monetary policy. Even if the mobs came for them, they have money and the means to get away. They have been living off the fat of the land. Why would they change the current structure? They privatize the gains and socialize the losses. Their decision-making is based on high time preference — short-term goals — and self-interested policy. In their world, rules change at their whim and they know how to act beforehand in order to come out on top.

Enter Bitcoin, a monetary network that is accessible to anyone in the world at any time, with no gatekeepers, intermediaries or central points of failure. The record of its transaction log is immutable and auditable by anyone. The supply of the asset is fixed. The issuance is awarded to those that expend their time and energy, the amount won commensurate with how much of their resources they expend. The disbursement of it is true trickle-down economics as those who have acquired it through provable work and energy expenditure, choose to sell it for other currencies, goods or services. This, in turn, enriches and compensates those that offer such goods and services, in exchange for their time and energy spent. Bitcoin is “engineered money.” It is a monetary network with rules but no rulers and is resistant to corruption by human fear and greed.

How did I get into Bitcoin? I was in the right place at the right time. I had experienced enough to be open to it. I had watched my parents get into debt, then bankruptcy, then divorce, then homelessness. I had experienced my own moral degradation and recovery. In 2016, a friend tossed me an old quarter and said it was made of silver. I had no idea. I quickly wanted to know about money. I soon found bitcoin.

Through this journey, I’ve come to understand money as an information tool. It can be thought of as an information tool that enables people to be accurately (or inaccurately) compensated for their time and energy. The fact that more units of the most pervasive information tool in the world, the U.S. dollar, can be arbitrarily produced at the whim of relatively few individuals, has never boded well for the majority. Money touches everything. Chaotic and shapeshifting money leaves everything it touches in an abyss of misinformation.

Most people go about their lives while never deeply questioning what their finite time on this planet is worth, let alone questioning the money they accept for their time and who controls it. When some entity can create money instead of work for it, they are stealing your time. This is inflation. It is a stealth tax on your wealth. When central bankers and governments decide to put more money into the system, it makes the pie bigger and makes your slice of the pie smaller. You thought the pie would stay the same size or at the most grow as humanity grew, that your work and sacrifice would let you climb the ladder and acquire more of the pie for yourself and your loved ones. Instead, you are subconsciously and often overtly incentivized to spend your money the moment you get it. You are ever in fear that the prices of the things you want will go up. In your lifetime, prices of desirable and scarce things have always gone up.

Unfortunately, disenfranchised and financially illiterate people are the ones who get left behind. They are usually unaware of the rules of this game and the fact that having wealth gives you access to borrow money at close to zero percentage interest, where you can, in turn, buy the scarce assets and reap the benefits of inflation. Most people never get out of the doldrums of lower and middle class, as they live paycheck to paycheck. In this pervasive case, it is common for people to live in debt. In debt to a system that holds an imaginary prize, the American dream, freedom, in front of them, just out of reach. America may be the best country in the world, but the pursuit of life, liberty and happiness gets increasingly harder the more you are beholden to debt.

Fear once ruled my life. Fear of taking chances. Fear of self-expression. Fear and inaction toward love to avoid being hurt. Fear and inaction toward success to avoid the pain of failure. I found a way out through recovery and accessed the fundamental behavioral change necessary. I also found bitcoin along the way. Recovery and bitcoin align well.

Self-sovereignty and taking responsibility for your actions are one in the same. Honest self-appraisal by taking a hard look at incentives and motivations helps me stay true to a more principled life based on honesty, open-mindedness and willingness. I also must be of service to those that desire positive change in their lives, in order for me to feel that I have some tangible purpose. Helping the next suffering alcoholic in the way that I have been helped gives me purpose. Helping the next sovereign individual grasp and develop an understanding of a brilliant alternative to government-backed money helps give me purpose too.

Bitcoin is an asset as well as a network that features a transparent monetary system, wherein provable work is rewarded with wealth creation, in a way that actually motivates innovation. I am abstinent from drugs and alcohol in the same way that I hope to one day be abstinent from participating in and, in consequence, perpetuating, a crooked economically structured world. Government-mandated, pay-your-taxes-in-it, crooked money that is excessively pervasive, leads to the degradation of the health and spirit of a society. Drugs and alcohol, done in excess, leads to the degradation of the health and spirit of the individual.

If we are to recover from the ills of wasteful consumerism, re-election seeking, bought-and-paid for government officials, and the unsustainable dependencies we as a society have on the cheapest goods and labor, we must adopt better money by which to use as the conduit for change. Bitcoin fixes this.

— — — — — —

Special thanks to the people, whose writings, thoughts and actions helped inspire this article:

Jeff Booth:

Robert Breedlove:

Parker Lewis:

And many more….

This is a guest post by OtterBTC. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.


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‘Bitcoin fixes this’ — US Infrastructure Bill would add $250B to US debt mountain

The United States tax bill which could hurt Bitcoin (BTC) and crypto holders will “continue the plunder of future generations,” Cameron Winklevoss argues.

According to new estimates, the proposed Infrastructure Bill currently under discussion in Washington would pile on an extra quarter of a trillion dollars in debt.

Bill may add $256 billion in debt

As the contentious bill makes its way through government, crypto voices continue to warn about a potential tax nightmare which, they argue, can still be easily avoided.

As Cointelegraph reported, language in the Bill may place undue demands on hodlers and businesses alike.

An effort is currently underway from pro-Bitcoin senators and the crypto industry to change the Bill’s phrasing to reduce the future burden.

Nonetheless, the Bill in and of itself is a cause for concern on an economic level, Winklevoss says.

“The infrastructure bill is estimated to add another $256B to the federal budget deficit,” the Gemini exchange co-founder tweeted Friday.

“It will not be fully paid for. The plunder of future generations continues. Bitcoin fixes this.”

His words come the week after the Federal Reserve saw a new record on its balance sheet, which topped $8.24 trillion for the first time on July 26.

Federal Reserve balance sheet chart. Source: Federal Reserve

More broadly, central banks worldwide have favored continuation of asset purchases regardless of future debt implications, flagging new variants of the Coronavirus as the impetus.

“The wrinkle, now, is Delta: if Delta causes the labor market to heal much more slowly, then that’s going to cause me to step back,” Minneapolis Fed President Neel Kashkari said Thursday, quoted by Reuters.

Caution over BTC price reaction

Short-term headwinds for Bitcoin are thus skewed by progress on the Bill, something which was already forecast to be a major market force this week.

Related: Bitcoin bulls overtake the $40K barrier ahead of Friday’s $625M options expiry

Traders were of mixed opinions on its market impact once passed, with popular Twitter account Pentoshi arguing that Bitcoin has already overcome more significant setbacks.

Other macro signals remain more muted, with the U.S. dollar currency index (DXY) treading water after recent volatility.

DXY 1-day candle chart. Source: TradingView