As of last Friday, June 16, the national government debt reached a record high of 32.04 trillion US dollars. What impact will this news have on the global economy? What impact will it have on Bitcoin and the cryptocurrency circle?
Bullish view:
As government debt increases, people may turn to Bitcoin and cryptocurrencies as a safe haven against possible inflation and economic instability. This could push up the prices of Bitcoin and cryptocurrencies.
BlackRock (the world’s largest asset manager) has filed an application for a spot Bitcoin ETF. The application comes a week after the SEC sued two of the largest cryptocurrency exchanges, Binance and Coinbase. Bitcoin has risen to its highest level since early May following the ETF application.
On Tuesday morning, EDX Markets, a new cryptocurrency exchange backed by financial giants Charles Schwab, Fidelity Digital Assets and Citadel Securities, launched its first public offering. The move could reshape the digital asset landscape amid the SEC’s increased scrutiny of the cryptocurrency industry. Regulators expect cryptocurrency exchanges to be separated from broker-dealer functions, similar to the structure of traditional financial markets, which would create opportunities for EDX.
Bearish view:
Raising the debt ceiling gives the U.S. government more borrowing power, which could lead to higher fiscal deficits and debt levels. High debt levels could cause investors to have less confidence in U.S. bonds, leading to higher Treasury rates. This is done to entice investors to buy more bonds. Money will flow into bonds instead of secondary.
If U.S. interest rates rise, countries with low interest rates may face pressure from investors to sell their currencies, which could lead to turmoil in global currency markets. As the U.S. Treasury issues more bonds, the Federal Reserve may be forced to increase the money supply (i.e., print money), which could dilute the value of the dollar.
If the market is worried about the dilution of the dollar's value, they may exchange dollars for US bonds to preserve their value. This may lead to a shortage of dollars and push up the dollar index. Money flows into US bonds, which is a negative 2nd level.
A high U.S. dollar index and a strong U.S. dollar could be bearish for other assets, including U.S. stocks and Bitcoin.
