In response to a latest report by crypto asset supervisor Bitwise, Bitcoin (BTC) is well-positioned to perform as “portfolio insurance coverage” towards sovereign default dangers. The report comes at a time when international debt-to-GDP ranges are breaching new highs, sparking considerations a few potential international debt disaster.
Bitcoin: A Resolution For World Debt Defaults?
The report highlights Bitcoin as an ‘fascinating different’ for traders in search of to protect their wealth throughout eventualities reminiscent of sovereign defaults or hyperinflation. It states:
In a theoretical mannequin, Bitcoin can function “portfolio insurance coverage” towards the default of a basket of main sovereign bonds with a present “honest worth” of round 219k USD based mostly on this mannequin.
To supply context, international public debt ranges are steadily climbing. Just lately, the US public debt surpassed $36 trillion, equating to 123% of the nation’s GDP. What’s extra regarding is the accelerated tempo of debt development since September 2024, amounting to $917 billion in only a brief span.
This rising fiscal debt isn’t restricted to the US. Different main economies, reminiscent of France and the UK, are additionally experiencing unprecedented will increase in public debt, elevating alarm bells for bond traders.
The Bitwise report cites Bitcoin as a compelling different to gold in such eventualities. It highlights that Bitcoin’s decentralized community structure primarily makes it a ‘trustless system,’ setting it aside from sovereign bond contracts, which depend on the issuer’s capacity to repay its debt.
The report additionally mentions that the weighted common default chance for G20 nations over the subsequent decade is at the moment 6.2%. Compared, the US has a weighted common default chance of round 4.5%. The report notes:
Based mostly on this mannequin, this may indicate a “honest worth” of Bitcoin of round $219,000 per BTC already. Within the unlikely occasion that every one G20 sovereign bonds would default concurrently, the theoretical “honest worth” of 1 single BTC inside this mannequin would improve to roughly $3.5 million.
That mentioned, the report emphasizes that main economies are unlikely to default within the short-term. Nevertheless, the aforementioned mannequin provides perception into the place BTC’s value may soar if such a state of affairs have been to happen.
Bitcoin Holding Regular Amid Macro Uncertainties
For the reason that March 2020 coronavirus crash, Bitcoin has largely remained resilient, regardless of dealing with vital macroeconomic headwinds over the previous 5 years. As an illustration, BTC value exhibited resiliency after the US Federal Reserve introduced its intention to gradual rate of interest cuts in 2025.
Equally, the resurgence of the Bitcoin ‘kimchi premium’ throughout South Korea’s political disaster in December highlighted traders’ choice for BTC as a wealth-preservation asset in occasions of uncertainty. At press time, BTC trades at $105,761, up 1.2% up to now 24 hours.
Featured Picture from Unsplash.com, Charts from Bitwise and TradingView.com