How Will Increasing Debt Levels Impact Bitcoin’s Price? #Article

How Will Increasing Debt Levels Impact Bitcoin’s Price? #Article

Debt is frequently compared to double-edged sword. Countries will borrow money to stimulate growth and large internal programs, providing a better economy for their people to accumulate wealth and a higher quality of life. This debt comes with interest, though, and many countries end up in a vicious cycle of borrowing or printing more money to repay their debts.
The more money a country borrows, the more that country will have to pay back in the future. It means that future generations would potentially have to pay back interest on debt accrued in the past, diminishing their ability to spend money on things they need.

The more a nation prints its own currency, the less buying power it will have (inflation) the U.S. annual inflation rate in 2019 rose to 2.1 per cent.
Whereas large economies like the US can borrow in their own currency, SMEs are often forced to borrow in foreign currency. This makes the debt issue even worse because, while the U.S. may print more dollars to service the debt, medium-small foreign countries can not print more dollars / EUR / CHF. Hence, their currencies generally suffer even greater depreciations in the event of rising levels of debt.

How serious are rising levels of debt?

For the past decade, the rapidly increasing national debt has been a hot topic of conversation, and Satoshi Nakamoto has actually created BTC as an escape from the undue power of centralized financial institutions and central banks on people's livelihoods.
The Chair of the Federal Reserve, Jerome Powell, stated in a Joint Economic Committee in November 2019 that U.S. national debt is growing faster than U.S. nominal GDP, a strong indicator that an economic downturn could come ahead.

U.S. debt is north of $23 trillion, nearly $70,000 per person, and the debt-to-GDP ratio is 106 percent, seeking the previous highest debt-to-GDP ratio in the Second World War.

Debt Levels and Bitcoin's Price It's relatively hard to draw any final and direct conclusions about how any particular variable, such as rising debt levels, will impact the price of Bitcoin. However, as a function of supply and demand, it is worth mapping (though simplifying) any relation.
Demand for any alternative currency continues to rocket in the midst of a local fiat currency's rampant inflation. Most Western countries haven't experienced extreme capital flows, but this isn't a rare occurrence in more politically troubled nations.

For starters, since 2016, the overall rate of inflation has risen to a whopping 53,798,500 percent and many Venezuelans have pursued cryptocurrency as a means of protecting their fiat assets from basically evaporation.

The more people who want to buy Bitcoin, particularly for the sake of holding onto the digital asset, the higher the price, given the sellers ' supply remains constant.

With a total population of about 32 million people, the impact of a minority of Venezuelans flocking to Bitcoin probably won't have a huge impact on the asset's price. However, if a country with a larger population of people willing and able to buy large amounts of BTC, the effect would be far more important.

For instance, for the first few months of 2019, Bitcoin lingered around $4,000, but then swelled towards the $13,000 range in July. This growth occurred in parallel with China devaluing its yuan as a response to U.S. tariffs in the backdrop of the U.S.-China trade war's rising tension.

Bitcoin also saw a 10 percent price jump within a week after Iranian military leader Qassem Soleimani was assassinated by the US. This leap has been attributed to international instability, but also to many Iranians buying BTC as a precaution against the US's possibility of implementing severe economic sanctions against Iran.

Final Thoughts

Because Bitcoin is a fairly young asset class, we do not have the advantage of a wide array of historical data to understand how debt levels influence its price. However, given the recent history and fundamental properties of Bitcoin, we can hypothesize how Bitcoin markets will respond to future potential rising levels of sovereign debt.

Just 21,000,000 bitcoins can be found, of which 18,155,012 are already on the market. Stable supply and fixed hard cap make it an advantage that shines over maleable fiat currencies, vulnerable to political risk.

Debt levels are expected to rise across the board, and higher inflation is required to tag the trip along. However, Bitcoin will remain stable in its supply and give the millions of fiat holders around the world a digital alternative. It's no wonder that Bitcoin has a reputation for being the currency "of the people," an innovative store of value, and a hedge for major global economic risks.


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