The U.S. federal government’s seemingly reckless borrowing now reached the $35 trillion level.
While this rising national debt is eye-catching, it doesn’t provide a full picture, says Rich Rosenblum, co-founder of trading firm GSR.
Debt lead to debasement, but Bitcoin resist
In the past and in other countries, increasing national debt always led to more inflation and less trust in traditional fiat currencies.
But unlike other times in history, nations and investors now have the option to buy crypto as a hedge against these pressures, explains Rosenblum.
He states that the fact that much of the world has ballooning debt and is in a debt trap is actually good for Bitcoin.
In such situations, investors often look for alternative stores of value like gold. Bitcoin, often called digital gold, is seen by some as a hedge against inflation and currency devaluation because of its decentralized nature and limited supply.
GDP is growing, but costs of living growing too
Rosenblum points out that while the rising national debt is concerning, it provide an opportunity.
He highlights the importance of considering debt relative to GDP, the overall level of interest rates, inflation, and consumer expectations.
The U.S. real GDP in Q2 2024 grew at an annual rate of 2.8%, driven by increased consumer spending, inventory investment, and business investment.
This is up from 1.4% in Q1, according to the Department of Commerce. Real GDP adjusts for inflation and measures the value of goods and services at constant prices, with 2.8% growth being relatively healthy for a developed economy like the U.S.
But the total public debt as a percentage of GDP remains high. After peaking at a ratio of 132% in Q2 2020, debt-to-GDP already fallen slightly to 122%, shows by the data from the St. Louis Federal Reserve.
Right now, the U.S. economic activity is outpacing the growth in national debt, the high debt level means real challenges for fiscal policy and economic stability ahead of the upcoming U.S. presidential election in November.
Treasuries aren’t safe from the Treasury itself
Jeff Yew, CEO of crypto asset manager Monochrome suggests that a rising national debt could drive more Bitcoin adoption as people and institutions reconsider what is traditionally seen as risk-free and re-evaluate their risk budgets.
When traditional risk-free assets like fixed income are backed by a currency that is depreciating rapidly after money printing, like now, investors will look towards alternatives like Bitcoin.
And as Yew shared, Bitcoin offers a strategic asymmetric return profile in a diversified portfolio.
