Can Bitcoin become a "safe haven" against inflation as a historic default on US bonds looms?

Interface News Reporter | Si Linwei

On May 16th, Reuters reported that US President Biden and Republican House Speaker McCarthy are preparing for key debt ceiling negotiations, with just over two weeks left before the US government could experience an unprecedented debt default. Biden, McCarthy, and three other congressional officials plan to hold consultations on Tuesday. The Republican Party claims that raising the $31.4 trillion debt ceiling must be linked to setting an annual federal spending ceiling, and the White House has not ruled out this option.

The US Treasury Department stated that it is still expected to pay US government bills until June 1st without raising the debt limit. Treasury Secretary Yellen wrote to Congress twice within two weeks, confirming that the Treasury is unlikely to fulfill all US government payment obligations by early June at the latest, which will trigger the first US default in history.

As the most developed capitalist economy in the world, once the US treasury bond falls into default, it will have a huge impact on the global economy. The New York Times published the opinion of Robert Hockett, a law professor at Cornell University in the United States. He believed that as the largest asset market in the world, American treasury bond bonds are also the first safe asset in the investment portfolio of banks and other institutions. Once the American debt defaults, it will cause severe turbulence in the American banking industry, financial markets and even the global capital markets. The severity of the crisis will even dwarf the recent American bank collapse crisis.

Secondly, Robert Hockett believes that after a US bond default, the value of the US dollar as a global reserve asset will plummet. Due to the large number of bonds issued by the US Treasury, the depreciation of US bonds is bound to trigger a depreciation of the US dollar, leading to a surge in domestic import prices and soaring inflation rates.

Against the backdrop of the possibility of a historic first default on US Treasuries, it is difficult for investors to find safer investment targets beyond the oldest hedging tool, gold. So will Bitcoin, known as' digital gold ', become the anti inflation' safe haven 'that investors need?

Bloomberg recently conducted a survey of investors, and the results showed that Bitcoin has also become one of the three most favored alternative assets for investors, with nearly 10% of respondents expressing willingness to purchase Bitcoin as a safe haven asset.

According to its MarketsLivePulse survey, precious metals are the top choice for those seeking protection in case Washington collapses on the debt ceiling issue. More than half of financial professionals say they will purchase gold if the US government does not fulfill its obligations.

The survey results show that if the US reaches the debt ceiling, gold, US treasury bond bonds and Bitcoin will be the top three preferred assets of investors, more popular than the US dollar, yen, Swiss franc and other assets. 51.7% of professional investors and 45.7% of retail investors prefer to buy gold, 14% of professional investors and 15.1% of retail investors prefer to buy treasury bond, 7.8% of professional investors and 11.3% of retail investors prefer to buy bitcoin. The survey was conducted from May 8th to May 12th, targeting 637 respondents worldwide.

In a podcast on Blockworks, AviFelman, head of digital asset trading at GoldenTree, and Jonah VanBourg, head of global trading at Cumberland, discussed the potential market reaction to a technical default in the US dollar. They believe that if the United States delays paying interest, even for a brief technical default, the combination of debt ceiling panic and the notion of Bitcoin as a hard asset may lead to a surge in Bitcoin buying sentiment. In other words, they believe that Bitcoin prices may rise significantly after a US bond default, and may even break historical highs.

The discussion on whether Bitcoin can become a safe haven asset has been ongoing. But as of today, the market value of Bitcoin is approximately $520 billion, with a significant gap from the market value of gold, which has exceeded $10 trillion. At the same time, in terms of volatility, the correlation between Bitcoin and the US technology sector is significantly higher than that with gold. As of the time of publication, the latest quote for Bitcoin was $27273, a 24-hour increase of 1.34%.