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Observe that small blue line on Google Trends for “bitcoin” reach its peak if the U.S. defaults on its debt. Initially, BTC may experience a downturn as markets adopt a risk-averse stance, but it could potentially excel during another global financial crisis.
House Republicans have come to a preliminary agreement with President Joe Biden’s administration over the Memorial Day Weekend. This agreement aims to facilitate an increase in the debt limit set by Congress on federal borrowing.
However, it is not guaranteed yet. House Democrats are dissatisfied with some of the last-minute compromises made by the Biden Administration. At the same time, Republicans may not support the legislation resulting from the recent debt limit agreement. U.S. Senator Rand Paul (R-KY) has stated he will not vote for it in the Senate.
U.S. Debt Agreement Reached, but Not Conclusive
The Treasury may begin to face shortages in meeting obligations as early as June 5th if the debt ceiling is not raised:
“In the United States, a default could lead to a freeze in financial markets and trigger an international financial crisis. Analysts predict millions of jobs would disappear, borrowing and unemployment rates would surge, and a stock market crash could wipe out trillions of dollars in household wealth. It would nearly devastate the $24 trillion market for Treasury debt.”
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What would be the impact on Bitcoin and the value of other cryptocurrencies if the U.S. defaults on its commitments? A debt default would place the economy in a significant predicament. This could easily lead to a decline in crypto prices across the board.
Default Would Initially Lower Crypto Prices
For 18 months, crypto and stock prices were correlated when the crypto winter began to thaw in January. Throughout the first half of 2023, this correlation has remained substantial.
What if the economy stalls, stocks plummet, and another global financial crisis occurs? Crypto prices, moving in tandem with stocks, would likely experience a sharp decline. Therefore, if the U.S. defaults instead of extending the debt ceiling soon, the macroeconomic outlook for crypto prices is expected to be quite pessimistic.
Conversely, a U.S. default would disrupt financial markets entirely. This could enhance Bitcoin’s appeal in comparison. In fact, it would tend to reinforce the argument of Bitcoin advocates that centrally controlled financial systems ultimately let down their users through corruption and mismanagement.
Thus, following an initial decline in crypto prices as markets adopt a risk-off approach, Bitcoin could gain momentum for a robust bull run. This scenario mirrored the events following the series of significant bank failures in March.
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