Bitcoin and the debt ceiling

by Arthur · April 21, 2023

Manuel Augusto Moreno — Getty Images

Crypto diehards are telling anyone who will listen to put their trust in Bitcoin instead of currency printed by the US government. For years this was a fringe position, but recently it has gained support from some unlikely quarters – including from a long-time currency analyst at Deutsche Bank who told MarketWatch that the rise of crypto is part of a “rebellion” against the dollar.

The alleged revolt came about in response to the wastefulness of the US government, which critics say has undermined the dollar with years of “quantitative easing”, near-zero interest rates and rampant stimulus. This has led to both consumers and foreign authorities looking at alternatives.

“The money printing, with its overt extraction of seigniorage and inflationary effects, has only further encouraged those in developing countries who want to establish a multipolar currency system more in line with their growing share of global GDP,” the Deutsche analyst said.

There is data to support this narrative. MarketWatch notes that the dollar accounted for about 70% of other nations’ foreign reserves in the 1990s, but that figure is closer to 58% today. Meanwhile, the US dollar has been the worst-performing G-10 currency over the past month, fueling increased talk of “de-dollarization” and likely helping to drive Bitcoin back to $30,000 despite regulatory headwinds.

This is not good news. The mighty dollar has helped the US maintain superpower status for decades, including by allowing Uncle Sam to borrow cheaply. The rise of alternative currencies – including gold, Bitcoin and the yuan – can only reduce its influence, and there is a looming risk that could accelerate this trend.

I’m referring to the looming debt ceiling crisis, which could cause Republicans to hold onto America’s creditworthiness while engaging in an unnecessary political stunt. Remember, this is what happened in 2011 when GOP hardliners decided to flirt with fiscal disaster by temporarily refusing to raise the cap—which is a technical measure Congress must invoke to pay for existing obligations—and bring America’s debt to to be downgraded. While both parties are to blame for the unsustainable state of the nation’s finances, Republicans are the only ones to have used the debt ceiling as a form of hostage-taking.

I’d like to think the GOP has learned its lesson from the 2011 debacle, for which it paid a political price, but I’m not optimistic—after all, this is a party that has seen fit to elevate insane people like Marjorie Taylor Greene to leadership roles. If it decides to go the kamikaze route under the current debt ceiling, it will deal another big hit to the dollar’s credibility – and a further boost to Bitcoin.

Jeff John Robertpp
[email protected]
@jeffjohnroberts

DECENTRALIZED NEWS

Bitcoin is up 72% this year, leading some analysts to suggest that Crypto Winter may be over. (Fortune)

Venture financing for crypto firms in Q1 fell a whopping 82% year-on-year, although certain segments – notably blockchain infrastructure – fared better. (Crunchbase)

Disgraced Terra founder Do Kwon was charged with fraud in Montenegro, where he is detained after attempting to leave the country for Dubai using a forged Costa Rican passport. (WSJ)

A new The Security and Exchange Commission bulletin tells investment advisors that when discussing crypto, they need to ensure their customers understand the products and the risky nature of the industry. (Coindesk)

Tom Brady, who is being sued for promoting FTX, told an audience in Miami that he remains passionate about crypto and running Autograph, his sports-related NFT startup. (The block)