As the US moves closer to a potential default on its debt, Nigel Green, CEO and market analyst of deVere Group, argues that the case for Bitcoin becomes even more compelling. This follows reports that US President Joe Biden has invited top congressional leaders for a May 9th meeting regarding the debt ceiling after The Treasury Department warned on Monday that a default could come sooner than expected - possibly as soon as June 1st.
The debt ceiling refers to the maximum amount of money the US can borrow to pay its bills. Since the cost of running the government is much greater than federal tax revenues, the US must raise additional money by selling Treasury bonds. However, it cannot do this after hitting the debt ceiling. If the US fails to pay its bills, it will default on its debt - a first in US history.
In a letter to members of Congress on May 2nd, Janet Yellen, the Treasury Secretary, warned that "waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States." Her announcement came on the same day as the Congressional Budget Office (CBO) reported that there is a "significantly greater risk that the Treasury will run out of funds in early June."
While the likelihood of a US default remains "unlikely" at this stage, according to Nigel Green, he affirms the debt ceiling drama "further strengthens the compelling case for Bitcoin" for two main reasons.
First, this saga underscores that the future trajectory of the US dollar is precarious and lies in the hands of opposing and increasingly divided politicians reaching difficult agreements. As the gridlock in Washington DC intensifies over the dollar debt ceiling, a growing number of retail and institutional investors may want to look to alternatives that are outside of political controls, such as Bitcoin, which has the added advantage of being digital, global, and borderless.
Second, while the debt ceiling is likely to be raised in the end, the government may find it hard to attract buyers, forcing the Federal Reserve back into Quantitative Easing (QE) - or money printing. QE is typically good for riskier assets such as Bitcoin, and it will likely further hit the long-term value of the dollar, providing a boost for the cryptocurrency. The debt ceiling drama underlines the flaws in the current fiat-dominated system.
Green argues that "the times ahead are destined to be radically different from what we have all experienced in our lifetimes so far, and I believe that increasingly, there will be a mixed system. Some will be currencies from governments, including digital and non-digital, and some will be digital and decentralized, such as Bitcoin."
