Watch that little blue line on Google Trends for “bitcoin” hit the ceiling if the U.S. defaults on its debt. BTC might suffer at first as markets go risk-off, but could easily shine in another global financial crisis.
House Republicans reached a tentative deal with President Joe Biden’s White House over the Memorial Day Weekend. The deal would help raise the debt limit imposed by Congress on federal borrowing.
But it isn’t yet assured. House Democrats are unhappy with some of the last-minute concessions made by the Biden Administration. Meanwhile, Republicans may not back the bill born of the recent debt limit deal. U.S. Senator Rand Paul (R-KY) says he will not be voting for it in the Senate.
U.S. Debt Deal Reached, but not Final
The Treasury could begin running short to meet bills due as soon as June 5th if the debt ceiling isn’t raised:
“In the United States, a default could cause financial markets to freeze up and spark an international financial crisis. Analysts say millions of jobs would vanish, borrowing and unemployment rates would jump, and a stock-market plunge could erase trillions of dollars in household wealth. It would all but shatter the $24 trillion market for Treasury debt.”
So what would happen to Bitcoin and the price of other cryptocurrencies if the U.S. defaults on its obligations? A debt default would put the economy in an enormous jam. That could easily push crypto prices down across the board.
Default Would Tank Crypto Prices… at First
What if the economy locks up, stocks take a dive, and there’s another global financial crisis? Crypto prices moving in correlation with stocks would be apt to crater. So if the U.S. defaults instead of extending the debt ceiling soon, the macro outlook for crypto prices will likely be very bearish.
On the other hand, a U.S. default would throw financial markets into total disarray. That could make Bitcoin look much better by comparison. In fact, it would tend to support the thesis of Bitcoin permabulls that centrally managed financial systems inevitably disappoint their users with corruption and mismanagement.
So after an initial drop in crypto prices, while markets go risk-off, Bitcoin could get some legs under it for a stout bull run. That’s what happened after the series of major bank failures in March.
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