Would a US Debt Default Derail Crypto Price Rally or Embolden It?

The rising interest rates in the US mean that the US government is now paying more in interest repayments on their debt than the entirety of their spending on their armed forces. 

The current debt repayments are going to be a difficult burden for the US taxpayer to bear, particularly when one considers that we are also now in a cost of living crisis. 

How would a US debt default affect crypto? 

Many are wondering how a US debt default would affect the global markets, and some are wondering how this could damage the cryptocurrency industry.

It is worth noting that the US government has never officially defaulted on their debts, but that they have instead opted for the more politically-viable option: inflate the problem away (such as in 1971, when Nixon took the country off the gold standard). 

Analysts such as Dan Tubb explain that crashing the stock market and reducing the nation’s credibility as a lender to zero isn’t a viable option, and would disenfranchise too many of the most powerful stakeholders in society. 

Moreover, it isn’t a politically popular option for pensions and other such arrangements to be completely destroyed. 

Although it isn’t ideal, a far more favourable and likely path for the government to take is to inflate the problem away, regardless of the fact that this will dramatically exacerbate the wealth divide. 

Is a debt default likely? 

Thanks to the aforementioned, it is highly unlikely that the US government will simply declare that they are bankrupt and default on their debts, and thanks to their position with the global reserve currency such a decision would likely be a disaster for the rest of the world too. 

There may be a significant degree of devaluation, especially considering that many other countries are now working to challenge their hegemony (Russia and Saudi Arabia recently announced that they are working to produce their own gold-backed stablecoin), but it is unlikely that they will outright default. 

Bitcoin remains a safe haven 

Whether one believes that Bitcoin is just a financial asset, or whether one believes that it could hail the end of the fiat world as we know it and remove the need for central banks, Bitcoin remains a safe haven from the constant devaluation if fait currency.  

The volatility of the fiat world is hugely problematic, and many analysts such as Matt Odell are concerned that in the coming recession there may be a series of bank runs and problems with traditional finance facing insolvency. 

The best way to prepare for this, he believes, is to allocate to an asset that one can truly own and to take custody of their own property in as much as they can. Volatility in the short and medium term is inevitable, but holding the most decentralised asset in the world is a boon for any asset allocator.