Can Bitcoin (BTC) Solve the US Debt Crisis?

Warning bells for the US debt crisis have been ringing for years now. However, since the Biden administration took over, this crisis has worsened significantly

The United States has been amassing debt for years, but the problem has gotten worse since the Biden administration took over, reaching $35 trillion this year. According to the US Treasury, the government is now accruing $1 trillion in debt every 100 days, a record for the world's largest economy. Last year, the cost of servicing this debt crossed the $1 trillion mark for the first time ever.

There are two main ways to solve national debt: raising taxes or cutting spending. In the US, cutting spending is a contentious issue that divides Americans and their lawmakers along partisan lines. Conservatives have pushed for budget cuts since Biden took office, but Democrats have strongly opposed them. When it comes to taxes, the dynamic is reversed, with Republicans criticizing tax increases and liberals supporting them.

This leaves Americans at an impasse, while the debt crisis continues to escalate. To put things in perspective, the country's debt-to-GDP ratio is approaching 100%. This ratio was last this high in the 1940s during World War II, despite a brief sharp increase during the 2020 COVID pandemic. At the current rate, debt will be 16% higher than America’s GDP by 2034, as shown below.

Can Bitcoin Solve the US Debt Crisis?

Since US lawmakers are unable to agree on taxes or spending cuts, some have proposed Bitcoin as a solution, as we previously reported.

Proponents highlight that Bitcoin is a deflationary asset that will hold (or increase) its value over time, unlike the US dollar, which has been losing value for years.

One of the commonly cited factors for BTC is its decoupling from traditional finance, which ideally makes it a hedge against inflation. However, even this is becoming less of a factor as TradFi giants like BlackRock have become the cornerstone of the sector.

One prominent supporter of BTC for solving national debt is Donald Trump, the Republican Party presidential frontrunner who has promised to make crypto central to his agenda if he wins back power from the Democrats in the November polls.

However, Trump has been short on specifics despite making grand promises. In a recent interview with Fox, when asked about his crypto plans, he said:

Who knows? Maybe we’ll pay off our $35 trillion dollars, hand them a little crypto check, right? We’ll hand them a little bitcoin and wipe out our $35 trillion.

Crypto has a market capitalization of $2.2 trillion as an industry. But more importantly, the US government should not count on its crypto appreciating enough to pay its debts.

A more practical proposal involves stablecoins. Paul Ryan, a former House speaker, outlined a plan to use stablecoins to attract foreign investment in American bonds and treasuries. Already, stablecoin issuers own more government securities than the entire country of Saudi Arabia and sit just outside the top ten largest investors.

As Ryan points out, encouraging more USD-backed stablecoins would provide the government with cheap and reliable financing for fiscal spending and extend America’s grip and influence on the world economy.

Meanwhile, BTC is trading at $60,400, down 2.5% in the past day.

Recommended for you: