US debt ceiling crisis galvanises Bitcoin’s safe haven status
US President Joe Biden is expected to meet on Tuesday with congressional leaders for emergency talks on the debt ceiling limit as the US barrels toward a deadline that could come as soon as June 1.
The negotiations are to avoid what could be an unprecedented default that would rock the global financial system.
Biden has been reluctant to give details about terms of the talks but said at the weekend that he believed a deal could be reached.
The standoff is down to Democrats demanding a “clean” increase without conditions to pay debts resulting from spending and tax cuts approved by Congress. Meanwhile, Republicans are saying they will not authorise any additional borrowing without an agreement to cut spending.
According to the US Treasury, a global economic disaster would ensue if the limit were not raised by Congress before the end of the month.
“The whole world is in trouble,’’ Biden has said.
“Potentially catastrophic’’ is how JPMorgan Chase boss Jamie Dimon described the situation, and “it has very serious repercussions’’ was the strong language used by the International Monetary Fund.
Against this backdrop of debt default risk being higher than ever, investors are looking to protect their wealth – and a new survey reveals that Bitcoin is now regarded a more popular safe haven then the US dollar, the yen or the Swiss franc.
According to the Bloomberg MLIV Pulse survey between May 8-12, when asked ‘what will you be buying if the US hits the debt ceiling, 45.7% of retail investors said gold, 15.1% said Treasuries, and 11.3% said Bitcoin. Only 10.2% said the dollar, with 4.3% and 6.5% for the yen and Swiss franc, respectively.
As the global financial system is on a knife-edge, this survey underscores that Bitcoin is increasingly seen as a safe haven asset.
One of the main reasons for this is because it operates on a decentralised blockchain, meaning it’s not controlled by any central authority like a government or a central bank. This makes it less vulnerable to manipulation or interference by external entities, providing a sense of security for investors.
Also Bitcoin has a predetermined supply cap of 21 million coins. This scarcity ensures that no entity can create an unlimited number of Bitcoins, unlike traditional fiat currencies that can be printed by central banks. The limited supply is typically seen as a safeguard against inflation and devaluation, which makes Bitcoin an attractive option during times of economic uncertainty.
The world’s largest crypto’s price movements are also relatively independent of traditional financial markets such as stocks, bonds, and commodities. This non-correlation means that Bitcoin’s value is not strongly influenced by the same factors that affect traditional assets. Consequently, during times of market volatility or geopolitical uncertainty, investors may turn to Bitcoin as a way to diversify their portfolios and hedge against potential losses in other asset classes.
Plus, it’s often dubbed ‘digital gold’ because, like the precious metal, it can serve as a store of value. Some investors view Bitcoin as a hedge against traditional assets and fiat currencies, as it is not subject to the same risks associated with government policies or economic instability. The belief in Bitcoin’s potential to retain or increase its value over time contributes to its perception as a safe haven.
Although a default remains a huge risk, we’re hopeful the politicians will do their job and find a solution before the world’s largest economy defaults on its financial obligations and upends the whole system.
Having said that, even if they do work it out, the crisis has helped erode the credibility of the dollar, which can only be bullish for Bitcoin in the longer-term.