“How a US Default Could Affect Bitcoin and the Cryptocurrency Market”

What’s happened

In January 2023 USA rested to the debt ceiling. We are talking about the limit of loans established by Congress, available to the authorities of the country. In early May, American Treasury Secretary Janet Yellen voicedthat the refusal to raise the debt ceiling could lead to a US default as early as June 1. The consequences of such a scenario are unpredictable. For example, Moody’s Chief Economist Mark Zandi thinksthat a US default could destroy the entire functioning financial system.

However, not everyone believes in the likelihood of such a scenario. For example, JPMorgan CEO Jamie Dimon thinksthat the US authorities will not dare to default. The optimists are backed by US President Joe Biden. May 17 head of state declared that there will be no default. Despite this, network polls showthat many still believe the worst.

“Do you believe in the possibility of a US default?
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At this point, the Russians who survived the default and devaluation of the ruble in 1998, despite statements Heads of the country that such a scenario is impossible nodded their heads in understanding.

Now let’s look at how America ended up in such an unpleasant situation. The fact is that US spending since 2022 exceeds the income that the state treasury receives from taxes and fees. The country’s public debt grew especially actively against the backdrop of the 2008 financial crisis and the height of the coronavirus pandemic. During these periods, the US authorities spent large sums on stimulus payments. The growing tension in the geopolitical arena in 2022 dealt another blow to the American economy.

How the US default will affect crypto

Bloomberg analysts write that a US default will provoke a flow of assets into gold, US Treasury bonds and bitcoin. At the same time, as polls have shown, the publication is more interested in private than professional investors. The latter prefer precious metal.

The editors of BeInCrypto decided to conduct their own survey to understand exactly how the US default could affect Bitcoin and the crypto market in general. Here are two possible consequences that our interlocutors drew attention to:

1. Bitcoin will rise despite the likely fall in the stock market, which the cryptocurrency often repeats.
2. The stablecoin market may face a serious crisis.

StormGain crypto exchange expert Dmitry Noskov believes that the US default will provoke the growth of gold and bitcoin, which has become an analogue of the precious metal in the digital asset market. In his opinion, the situation can become the very incentive that will help BTC break through the $30,000 level and go higher. agreed with his opinion General Director of CFA.RF Nikolai Zhuravlev.

“A US default will definitely support the growth of bitcoin, since many investors consider it a kind of “safe haven” not only in comparison with the dollar, but even with traditional “safe haven currencies” – the yen and the Swiss franc. Bitcoin is called “digital gold”, which has become more popular than any fiat currency,” our source said.

Dean of the Faculty “Digital Economy and Mass Communications” MTUCI Sergey Gataullin agreed with the forecast that in the event of a US default, gold, bitcoin, and US Treasury bonds will be in the spotlight.

Joined the discussion blockchain developer Evgeniy Grechenok. He noted that bitcoin attracts investors with its decentralized nature and limited issuance. At the same time, our interlocutor recalled the high volatility of BTC.

“During the default period, a sharp demand for bitcoin will create the prerequisites for the growth of the asset, but then there will be a period of correction, due to which its value can drop significantly. It will be very important to find the right entry and exit points for the asset,” summed up our interlocutor.

Head of Analytical Department for Global Markets IC Fontvielle Artur Meinhard, in turn, drew attention to the impact of a possible default on the US government debt on the stablecoin market. In the event of such a scenario, our interlocutor is sure, the provision of “stable coins” may lose its investment attractiveness, since most of them are in short-term US government bonds and cash positions.

“Stablecoins, being a derivative of the US dollar, will experience significant selling pressure: crypto-investors will begin to massively get rid of them, preferring to shift to bitcoin and other crypto-assets. Against this background, increased volatility of the entire cryptocurrency market is expected, firstly, due to massive purchases of cryptoassets, and, secondly, decoupling of stablecoins from parity to the US dollar 1 to 1 downwards,” summed up our interlocutor.

Summing up

A US default could trigger a flow of assets into the crypto industry. There are many examples in history when the problems of the traditional financial market caused an increase in investor interest in cryptocurrency. For example, against the backdrop of the US banking crisis in the spring of 2023, Bitcoin experienced the best week in history. At the same time, BeInCrypto interlocutors recalled the high volatility of BTC. In the event of a rapid increase in the bitcoin rate, a significant correction is not ruled out. Do not forget about the connection of the crypto industry with the traditional financial market. The problems of the latter, in the long run, can worsen the position of cryptocurrencies.

Also, experts with whom the BeInCrypto editors managed to talk see a reason for a crisis in the stablecoin market in the event of a default on the US government debt. The problems of stablecoins could, in turn, worsen the overall health of the crypto industry.

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