Bitcoin vs Gold: Which is the Best Safe Haven in the US Debt Ceiling Crisis?

Bitcoin vs Gold: Which is the Best Safe Haven in the US Debt Ceiling Crisis?


Explore the potential safe haven assets of gold and Bitcoin in light of the US debt ceiling crisis and the likelihood of a default, considering their correlation with stock markets and investors’ preferences in times of crisis.

The macroeconomic scenario is getting increasingly complicated: following the latest revelations about the United States debt ceiling crisis and a possible default of the world’s 1st superpower, there are already those who are speculating about taking cover with safe haven assets such as Gold and Bitcoin.

The digital currency is increasingly being associated with yellow gold, despite the fact that the data show a big difference betwixt the two assets, especially the correlation with stock markets.

Let’s try to explore this in more detail in this article.

Bitcoin (BTC) and gold as safe haven assets in case of a United States debt ceiling crisis

In difficult times like these, investors set out in search of the best safe haven investment, and once more eyes are on gold and Bitcoin.

After the  banking crisis in March that saw the failure of institutions such as Silicon Valley Bank, now it is the turn  of the United States debt ceiling crisis.

The  United States has a federal debt ceiling of $31.4 trillion: the threshold is about to be crossed after the mountain of debt that Government and households have taken on in recent years.

Reports by the Federal Reserve Bank of New York, the amount of United States household debt exceeded $17 trillion for the 1st time in the 1st quarter.

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The figure gives pause for thought when we consider that since March 2022, when the Fed began a restrictive policy by raising interest prices on Government bonds, households have increased their debt even more, which outlines that the change in lending prices does not affect the habits of United States citizens.

In particular, since the Federal Reserve 1st tightened its monetary policies, consumers have added greater than $860 Billion to total mortgage balances, $145 Billion in credit card debt, $93 Billion in auto loans and $14 Billion in student loans.

Bitcoin vs Gold: Which is the Best Safe Haven in the US Debt Ceiling Crisis?
Chart of total household debt in the US

As of today, the federal funds price is betwixt 5 percent and 5.25%, but it does not appear to have slowed down the United States debt frenzy, especially as it relates to credit cards.

To be fair, betwixt the end of 2022 and the end of March 2023 there were no notable increases, on the other hand, the figure shows that at $1 trillion, the interest Americans owe on their credit cards reached its highest point ever.

Asking for a balance on one’s card now comes at a very high cost, with an average interest price of 20.92%.

Although while it seems crazy for Europeans to ask for credit at these prices, it is common practice in the United States to take on debt in this manner seeing as that numerous households have debt on greater than one credit card.

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Bitcoin vs Gold: Which is the Best Safe Haven in the US Debt Ceiling Crisis?
Chart of the tendency in the average interest price charged on credit cards

All this only alarms investors: this mountain of debt connected with high interest prices might propel the United States into a debt crisis, gave the Government does not raise the ceiling as it did in previous years.

What do investors prefer in times of crisis: gold or Bitcoin? 

Let’s try to better understand investors’ attitudes in times of crisis.

At the Bitcoin (BTC) Conference in Miami, which took place several  days ago, participants were requested to express their opinions about what they would buy if the United States debt ceiling was reached, and they of course chose gold and its virtual version.

Nonetheless, these opinions are unreliable since everyone at the conference has a soft spot for Bitcoin (BTC) and the cryptocurrency market in general.

Forbes, on the other hand, tried to take a more representative sample by asking 637 different investors which assets they would prefer in the event that the United States defaulted on its obligations and did not pay its federal debts.

The result is quite interesting: traditional gold comes in 1st place with an equal number of choices betwixt retail and institutional investors, followed by United States treasuries and Bitcoin (BTC) taking the podium with 7.8 percent preferences from institutional and 11.3 percent from retail.

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Traditional currencies such as the dollar, Japanese yen and Swiss franc lag behind highlighting a fallacy in being able to serve as safe haven assets, at least reports by investors’ thinking.

Bitcoin (BTC) and gold have always been praised for their decentralization and deflationary nature, although digital currency, unlike the yellow metal, likewise enjoys the characteristic of being resistant to censorship.

With Bitcoin, it would not be possible to replicate what United States President Franlink D. Roosevelt did when he announced Executive Order 6102 on 5 April 1933 with the aim of prohibiting the possession of any form of gold, depriving its citizens of it.

Satoshi Nakamoto designed his virtual digital currency in such a way that it  can potentially withstand these attacks and serve as a true reserve, not controllable by anyone.

Beyond that, gold is certainly a more conservative and more reliable choice, given the presence of a broader history of price performance and given the low correlation with stock markets.

Although while in the previous 5 years gold had a correlation index of 0.04 with the S$P500, Bitcoin (BTC) records a very strong correlation of 0.88, meaning that it often moves in the same direction as stocks.

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What would happen to the cryptocurrency market if the United States goes into default? 

The United States is approaching the debt ceiling set during 2021, fueling fears of an inability of the Government to repay bondholders consequently leading to a default of the nation.

Nonetheless, it is frequently forgotten that the federal “debt ceiling” has been raised as numerous as 78 times since 1960 until the last time Congress decided that value to the present $31.4 trillion.

Until 2007, before the worldwide financial crisis, the federal debt had been held below $10 trillion. 

Within 15 years this has greater than tripled resulting in a red-hot political climate betwixt Democrats and Republicans.

Bitcoin vs Gold: Which is the Best Safe Haven in the US Debt Ceiling Crisis?
Charting the national debt and the debt ceiling

The fact that the debt is approaching the maximum allowed ceiling does not necessarily mean a danger of default: first, because the debt ceiling can be raised even 1 day before the ceiling is exceeded.

Furthermore, in extreme cases, a “ Government shutdown” would take place, i.e., a cut in Government costs beginning with salaries of nonessential employees and moving on to payments of suppliers of goods and services, current expenditures, etc.

Markets would be immediately influenced by this contingency strategy, but it would still be possible to avoid default, which would lead to much more catastrophic effects.

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In the most pessimistic case, i.e., one in which the United States proves unable to honor the federal debt in the months ahead, markets, especially the more speculative ones such as digital currency markets, would experience a colossal downturn.

Although while Bitcoin (BTC) and Ethereum (ETH) would probably be able to weather the storm, albeit with double-digit negative price changes, numerous crypto tokens in the crypto altcoin segment would perhaps not be able to survive.

All the more so if we are talking about digital currencies with no fundamentals behind them or with derisory projects such as memecoins, a default could spell the end of these financial experiments, while in the long run assets with more intrinsic value would still manage to emerge.

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This page is simply meant to provide information. It does not constitute a direct offer to purchase or sell, a solicitation of an offer to buy or sell, or a suggestion or endorsement of any goods, services, or businesses. Lolacoin.org does not offer accounting, tax, or legal advice. When using or relying on any of the products, services, or content described in this article, neither the firm nor the author is liable, directly or indirectly, for any harm or loss that may result. Read more at Important Disclaimers and at Risk Disclaimers.




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