Bitcoin (BTC) Poised to Function as “Portfolio Insurance” Against Sovereign Default Risks: Report

According to a recent report by crypto asset manager Bitwise, Bitcoin (BTC) is well-positioned to function as “portfolio insurance” against sovereign default risks.

A recent report by crypto asset manager Bitwise has found that Bitcoin (BTC) is well-positioned to function as “portfolio insurance” against sovereign default risks. The report comes at a time when global debt-to-GDP levels are breaching new highs, sparking concerns about a potential global debt crisis.

The Bitwise report highlights Bitcoin as an ‘interesting alternative’ for investors seeking to preserve their wealth during scenarios such as sovereign defaults or hyperinflation. It states:

In a theoretical model, Bitcoin can serve as “portfolio insurance” against the default of a basket of major sovereign bonds with a current “fair value” of around 219k USD based on this model.

To provide context, global public debt levels are steadily climbing. Recently, the US public debt surpassed $36 trillion, equating to 123% of the country's GDP. What's more concerning is the accelerated pace of debt growth since September 2024, amounting to $917 billion in just a short span.

This rising fiscal debt isn't limited to the US. Other major economies, such as France and the UK, are also experiencing unprecedented increases in public debt, raising alarm bells for bond investors.

The Bitwise report cites Bitcoin as a compelling alternative to gold in such scenarios. It highlights that Bitcoin's decentralized network architecture essentially makes it a ‘trustless system,’ setting it apart from sovereign bond contracts, which rely on the issuer’s ability to repay its debt.

The report also mentions that the weighted average default probability for G20 nations over the next decade is currently 6.2%. In comparison, the US has a weighted average default probability of around 4.5%. The report notes:

Based on this model, this would imply a “fair value” of Bitcoin of around $219,000 per BTC already. In the unlikely event that all G20 sovereign bonds would default simultaneously, the theoretical “fair value” of 1 single BTC within this model would increase to approximately $3.5 million.

That said, the report emphasizes that major economies are unlikely to default in the short-term. However, the aforementioned model gives insight into where BTC's price might soar if such a scenario were to occur.

Bitcoin Holding Steady Amid Macro Uncertainties

Since the March 2020 coronavirus crash, Bitcoin has largely remained resilient, despite facing significant macroeconomic headwinds over the past five years. For instance, BTC price exhibited resiliency after the US Federal Reserve announced its intention to slow interest rate cuts in 2025.

Similarly, the resurgence of the Bitcoin ‘kimchi premium’ during South Korea's political crisis in December highlighted investors' preference for BTC as a wealth-preservation asset in times of uncertainty. At press time, BTC trades at $105,761, up 1.2% in the past 24 hours.