- Joe Biden signed into law the debt ceiling agreement reached last week.
- The agreement did not have a provision to reduce US public debt.
- Estimates are that the US debt will soar to $50 trillion by 2030.
Cryptocurrency prices have been under pressure in the past few weeks, with Bitcoin struggling to retest the year-to-date high. The same is true with gold, which is still hovering below the key resistance point at $2,0000. Still, I believe that gold, silver, and cryptocurrencies will soon have to contend with a major $50 trillion black swan event.
Biden signed the debt ceiling deal
The biggest news in the past few days was the decision by the two houses to pass the debt ceiling deal last week. Joe Biden signed the deal during the weekend, helping avert the US from having an unprecedented default. That default would have been a major black swan event that would have crashed the American stock market.
A black swan event is defined as a once-in-a-generation event that leads to major consequences. While this black swan event has now been averted for two more years, I believe that another one will happen in the next few years.
The challenge with the compromise deal is that it left the Biden administration with a blank check to keep spending. As a result, unless the government reaches an agreement to balance the budget, it means that it will continue having a $1 trillion deficit every year.
As a result, the country’s debt will get to $44 trillion by 2030 and $52 trillion by 2033. Some analysts believe that the debt will get to $50 trillion by 2030.
US public debt to hit $50 trillion soon
There is more trouble ahead since the country’s social security funds are expected to run out in the next decade. As a result, this will require the government to raise taxes or borrow much more money to continue making these payments.
The US can avoid this but it has no ability to do that since it takes courage. To reduce this debt, the US needs to cut spending, which Democrats are opposed to. It also needs to raise some taxes, which Republicans abhor. Therefore, the compromise is to keep spending.
The US raises its funds by selling debt to investors, who mostly include countries like Japan and China. These countries expect to be paid back. However, if the debt soars too much, they will start demanding more interest, fearing a default.
All these factors have an impact on cryptocurrencies like Bitcoin and Litecoin since most investors see them as safe havens in times of trouble. Bitcoin is commonly seen as the best alternative to gold, which has been a safe haven for decades.
Analysts believe that gold will be a good place for investors to hide as the US debt nears $50 trillion. In a recent note, analysts at JP Morgan wrote that:
"With the gold price rising above $2,000, the value of gold held for investment purposes outside central banks is currently valued at around [$3 trillion]. In turn, this implies a $45,000 price for bitcoin under the assumption that bitcoin equalizes gold in private investors’ portfolios in risk capital or [volume]-adjusted terms."
On the other hand, if Bitcoin rises, it will drag other cryptocurrencies like Hedera Hashgraph, XRP, Cardano ADA, and KAVA higher.
