Rising US government debt drives up Bitcoin and gold prices
According to BlockBeats, concerns about the rapid increase in US government debt have been identified as part of the reason for recent spikes in Bitcoin and gold prices. Even so, the US Treasury market remains relatively optimistic about the country's financial outlook. The US budget deficit in fiscal year 2023 has increased to 1.7 trillion USD and is expected to reach 2.6 trillion USD in 2034. At the same time, US public debt is predicted to reach 106 % of GDP in 2028, higher than 97% in fiscal 2023. Since 2007, the size of US debt has increased from $5 trillion to $27 trillion.
Growing US government debt has attracted more attention, with interest payments taking up a larger share, sometimes even exceeding defense spending. This worsening trend has boosted demand for Bitcoin and gold, which are often used as tools to hedge against inflation and the decline in the purchasing power of the dollar. Brad Bechtel, Global Head of FX at Jefferies, stated that concerns about the US debt cycle and devaluation of fiat currencies have fueled the Bitcoin and gold narrative, causing investors to allocate more into these assets.
Lawrence H. White, a professor of economics at George Mason University, believes that interest in Bitcoin and gold also stems from rising inflationary turmoil. More worryingly, debt and deficits remain elevated during periods of peace and full employment, which could cause larger debt increases during the next recession. In addition to hedging, Bitcoin price increases are also influenced by the launch of new ETFs and the upcoming halving event. On the other hand, gold has reached historic highs due to expectations of central banks cutting interest rates and the need to diversify foreign exchange reserves. However, the rapid deterioration of the US financial situation is still a major concern for some investors.
Market strategist Michael Hartnett points out that recent highs in gold and technology stocks suggest the US may have to adopt policies such as yield curve control to avert a debt crisis. However, Nicholas Colas, co-founder of DataTrek Research, stated that several indicators in the current Treasury market show that bonds are not yet reflecting the expected deterioration in the financial outlook. Investors still consider the dollar as a reserve currency and US bonds as relatively safe assets. If looking for large-scale risk-free assets, the US bond market is still the top choice.
