February 23, 2024

As the deadline for the U.S. government to raise its $13.4 trillion debt ceiling approaches, how does this affect Bitcoin?

debt ceiling fiasco

The periodic battle between the two parties in the US government revolves around raising the national debt ceiling. Opposition parties will always corner the ruling party and gain as much advantage as possible before agreeing to a new debt ceiling.

The debt ceiling is the maximum amount of debt the United States can borrow to meet its fiscal obligations. Analysts predict the U.S. could run out of money in the third or fourth quarter of the year, while some say weak tax revenues in April could push the deadline forward.

If the U.S. fails to raise the debt ceiling in time for whatever reason, it will default on debtwhich is almost unthinkable for the US government and has the potential to lead to a global economic crisis.

So is a U.S. debt default good for Bitcoin?

Bitcoin Thrives in Boom Times

Some might argue that a U.S. debt default would cause investors to flee the dollar and seek alternatives such as bitcoin, gold, and other sound forms of money.

However, there are also those who believe that an economic crisis may lead to a general decline in assets, but this may only be temporary as investors need to park their funds somewhere, although it must be admitted that cash is usually where investors go first in a crisis.

Another upside to Bitcoin could be that the Fed stops raising rates and is forced to start quantitative easing again.

However, with inflation still lingering in the background, the Fed will walk a tightrope. Given the considerable likelihood of a recession in late 2023-2024, the Fed will have to weigh whether helping the economy out of the woods or potentially sparking another uptick in inflation.

Can Bitcoin Thrive During Difficult Times?

Bitcoin tends to do better when economic liquidity is plentiful, but with persistent inflation waiting to rear its ugly head, the Fed may feel it cannot step in.

Now is the time Bitcoin needs to step up and be a store of value in good times and bad. If more banks start failing, then Bitcoin will need to step up and become a reliable store of value.

Disclaimer: This article is for informational purposes only. It does not provide or be intended to be used as legal, tax, investment, financial or other advice.