ChainCatcher reported that investors are paying renewed attention to scarce assets such as Bitcoin and gold as US government debt continues to rise, treating them as tools to hedge against declining dollar purchasing power.
US Treasury data show that as of last Friday, federal debt had climbed to a record $39.7 trillion. Market participants cited in the report said US government debt is currently increasing by about $7 billion per day, and that, on a market-cap basis, the size of that daily increase is larger than most crypto assets.
Debt growth is reviving interest in scarce assets
The founder of LondonCryptoClub said the pace of US debt expansion is driving what he called a “currency debasement trade,” in which investors buy supply-constrained assets such as gold and Bitcoin to deal with the long-term risk of fiat currency depreciation.
The group said that under a “fiscal dominance” environment, Federal Reserve policy could be influenced by the government’s financing needs. In that setting, rates may need to stay low and liquidity may need to keep flowing to help refinance debt.
Apollo economist warns fiscal space is limited
Apollo Chief Economist Torsten Slok had earlier warned that US debt as a share of GDP has already exceeded 120%, leaving limited room for fiscal stimulus in a future recession. At the same time, he said the Fed may no longer be able to cut rates as sharply as it did in the past, because rate cuts could intensify inflation and lower Treasury yields, affecting government financing.
Bitcoin stays above $65,000, while Ethereum gains relative strength
Bitcoin is currently holding above $65,000. The report said easing tensions between the US and Iran, along with lower oil prices, helped lift risk appetite.
Ethereum has also outperformed Bitcoin recently. The ETH/BTC ratio broke above its 100-day and 200-day moving averages, and the market sees signs that an altcoin rally may be building.
Bitcoin’s safe-haven role remains contested
Even so, analysts said that since its birth in 2010, Bitcoin has traded more like a technology stock than a traditional safe-haven asset, leaving its defensive role open to debate.