Satoshi Nakamoto designed Bitcoin (BTC) as a payment instrument in its own right. However, financial markets are still influencing the crypto industry and economic issues are impacting crypto. The digital asset market risks the consequences of a US debt ceiling default. BeInCrypto asked experts to comment on the impact of a default on Bitcoin and stablecoins.
What’s happened?
The United States reached its debt ceiling in January 2023. The ceiling is a limit set by Congress on borrowings the government can borrow.
US Treasury Secretary Janet Yellen predicted in May that the US could default by June 1 if Congress does not raise the debt ceiling. The consequences of this scenario are unpredictable.
Mark Zandi, Moody’s chief economist, says a US default could destroy the existing financial system.
His opinion is not universally shared. JPMorgan boss Jamie Dimon argues that the US authorities would not risk a default.
President Joe Biden supports the optimists. On May 17, the head of state announced that there would be no default. However, online polls show that many are expecting the worst.
Poll Screenshot | Source: Twitter
Now let’s examine how the US got into this awkward situation.
US spending since 2022 exceeded revenue received by the US Treasury from taxes and fees. Against the background of the 2008 financial crisis and the peak of the coronavirus pandemic, the country’s debt increased significantly.
During these periods, the US authorities spent large sums on stimulus payments. The mounting tensions in the geopolitical arena in 2022 dealt another blow to the American economy.
US Revenue to Expense Ratio. Source: TradingEconomics
How the US default will affect cryptocurrencies
Analysts from Bloomberg write that a US default will trigger an inflow of wealth into gold, US Treasuries and Bitcoin. As surveys show, professional investors prefer precious metals.
Bloomberg Poll Results | Source: Bloomberg
The publishers of BeInCrypto have decided to conduct their own survey to understand the impact a US default could have on BTC and the broader crypto market. Experts see two possible outcomes:
- Bitcoin will rise despite the stock market meltdown that cryptos often track.
- The stablecoin market could face a serious crisis.
Dmitry Noskov of crypto exchange StormGain says that the US default will boost gold and bitcoin growth since bitcoin is a digital asset analogue of the precious metal. Noskov says the default could accelerate BTC’s surge to $30,000 and beyond.
Nikolai Zhuravlev, Director General of TsFA.RF, agreed.
“A US default will definitely support Bitcoin’s growth as many investors view it not only against the dollar but even against the traditional ‘safe haven currencies’ – the yen and Swiss franc – as a kind of ‘ ‘safe haven’.” Bitcoin has been dubbed “digital gold” and has become more popular than any other fiat currency.”
Dean of the Faculty of Digital Economics and Mass Communications at MTUCI Sergey Gataullin agreed with the forecast, saying that gold, Bitcoin and US Treasury bonds could be in the spotlight.
Blockchain developer Evgeny Grechenok chimed in, noting that BTC is attracting investors due to its decentralized nature and limited issuance numbers. At the same time, he drew attention to the high volatility of Bitcoin.
“During the downtime, strong demand for Bitcoin will set the stage for the asset’s growth, but then there will be a corrective phase due to which its value can drop significantly.” It will be very important to find the right entry and exit points for the to find an asset.”
Arthur Meinhard, head of global markets analytics at IC Fontvielle, reflected on the impact of a default on the stablecoin market.
He said stablecoins could lose their investment appeal as most are short-dated US Treasuries and cash.
“Stablecoins, which are a derivative of the US dollar, will face significant selling pressure: crypto investors will start dumping them massively, preferring to switch to bitcoin and other crypto assets.
“Against this backdrop, expect increased volatility in the overall cryptocurrency market, firstly due to massive buying of cryptoassets and secondly due to the stablecoins’ downward pegging from one-to-one parity to the US dollar.”
Summarize
A US default could trigger an inflow of wealth into the crypto industry. There are many historical examples where the troubles of the traditional financial market led to a surge in investor interest in cryptocurrencies.
Against the background of the US banking crisis, Bitcoin experienced its best week in spring 2023.
At the same time, experts reminded of the high volatility of BTC. A sharp correction is possible in the event of a rapid increase in the Bitcoin price.
Don’t forget the connection between the crypto industry and the traditional financial market. The latter’s issues may prove negative for crypto in the long run.
Experts also believe that if the US government defaults on its debt, there will be a crisis in the stablecoin market. This crisis could worsen the overall health of the crypto industry.
For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.
Disclaimer
In accordance with Trust Project guidelines, this opinion article represents the author’s perspective and may not necessarily reflect the views of BeInCrypto. BeInCrypto remains committed to transparent reporting and compliance with the highest journalistic standards. Readers are encouraged to independently verify the information and to consult a professional before making any decisions based on this content.
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