Table of Contents
As the US government approaches the deadline to raise its $13.4 trillion debt ceiling, how does this affect Bitcoin?
The debt ceiling fiasco
A periodic war between both parties in the US government is over the raising of the country’s debt ceiling. It is always the case that the opposition party will take the governing party to the wire and extract as much advantage as it can before agreeing the new debt ceiling.
The debt ceiling is the maximum amount of debt that the US can borrow in order to meet its financial obligations. Analysts predict that the US could run out of money by Q3 or Q4 this year, while some are saying that weak tax receipts for April may bring the deadline forward.
If the US should somehow not be able to raise the debt ceiling in time it will default on its debts, something that is almost unthinkable for the US government, and would potentially lead to a global economic crisis.
So would a US debt default be good for Bitcoin?
Bitcoin thrives in the good times
Some might argue that a US debt default would lead to investors fleeing the dollar and seeking alternatives such as Bitcoin, gold, and other sound forms of money.
However, it could also be argued that an economic crisis could lead to a drop in assets across the board, but this might only be temporary as investors would need to put their money somewhere, although it must be admitted that cash is traditionally where investors go first in a crisis.
Another bonus for Bitcoin could be when the Federal Reserve stops raising interest rates and is forced to commence quantitative easing once again.
However, with inflation still hovering in the background the Fed will be walking a tightrope. With recession looking reasonably likely for the end of 2023 into 2024, the Fed will have to weigh up helping the economy out, against possibly sparking off inflation to the upside once again.
Can Bitcoin flourish in bad times?
Bitcoin tends to do much better in times when there is plenty of liquidity in the economy, but with ever-present inflation waiting to rear its ugly head, the Fed might feel that it can’t step in.
The time has come when Bitcoin needs to step up and be a store of value in the good times as well as the bad. Should more banks start to fail then Bitcoin will need to step up and become that reliable store of value..
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.