Can Cryptocurrency Save the U.S. from a Debt Crisis? The Role of Stablecoins and Bitcoin
The United States’ debt situation is rapidly becoming precarious, with the national debt now rising past an incredible $35 trillion. Former House Speaker Paul Ryan recently indicated that perhaps cryptocurrency would be able to save the U.S. from a potential debt crisis, citing stablecoins and Bitcoin specifically as solutions. As the reserve status of the dollar starts bearing down, will these virtual currencies start to keep the burden of the monetary cost of the country in check? And will Bitcoin continue its meteoric rise past $150,000?
Debt Crisis in the US: A Growing Problem
The national debt of the United States is an issue that has been troubling the nation for quite some decades now. This form of fiscal policy has relied heavily on deficit spending, which has resulted in an increasingly onerous debt burden now threatening its financial stability. The erosion of its position as the world’s reserve currency may well weaken the U.S. ability to borrow cheaply and its influence over the global economy. The problem is compounded by decreasing interest from abroad in “. Treasury bonds—something once considered a safe haven for investors.
Stablecoins: Saving Graces for U.S. Debt?
One new entrant into the world of cryptocurrency is digital coins that are pegged to the traditional form of currency, like the U.S. dollar, called stablecoins. The main stablecoins, such as Tether and USD Coin, keep a large majority of their total reserves in U.S. government debts. According to recent reports, Tether alone keeps over $84 billion worth of U.S. Treasury bills, and Circle’s USD Coin holds an additional $11 billion.
Stablecoins are increasingly in vogue, and a big surge in demand can be created for U.S. debt. Stablecoins essentially are a bridge between the fiat and crypto worlds-they make it easy for traders to jump into and out of digital assets. Demand could thus help absorb U.S. Treasury bonds, thus part of the pressure built by foreign governments decreasing their hold on U.S. debt.
For instance, the largest historical buyer of U.S. debt — China — has greatly reduced its exposure in the past few years — from $1.27 trillion in 2013 to under $1 trillion in 2022. A big part of it is geopolitical and changes in trade policies; it’s now more dependent on domestic and alternative buyers to purchase their debt.
Some stablecoins may be introduced into the debt market. Given that stablecoins can mollify some of the foreign lack of interest in Treasuries, this development could reduce the dependence of the nation on old buyers for its debt. This may stabilize the demand for U.S. debt amid an ever-changing global balance sheet.
BTC/USD Daily Chart
Source: TradingView, by Richard Miles from Fx4Today
Stablecoins and the Global Reserve Currency Debate
The biggest issue with stablecoins is related to the erosion of the position of the U.S. dollar as a global reserve currency. A strong player entering this space on public, permissionless blockchains, stablecoins may challenge leadership positions, then challenge the status quo. But whereas centrally issued digital currencies will fulfill the ideals of freedom, openness, and transparency— which are virtues the U.S. financial system espouses—stablecoins may thereby be more attractive than the state-backed digital yuan in China.
A Hoover Institution report says that for the U.S. to maintain economic leadership, it will have to take a lead role in the digital currency space. It shall look to set worldwide standards for digital currencies that shall emphasize privacy, accountability, and respect for the rule of law. By creating some kind of regulatory framework for stablecoins, the U.S. can be assured of using these new digital currencies to strengthen and not to destroy American values.
Building free world global digital financial infrastructure alone will require collaboration with other democratic nations. In this new world shaping, the U.S. plays an active role; in that event, stablecoins can potentially prove a historic step toward securing a financial future, no matter how high the debt grows.
Bitcoin and the Debt Crisis of the United States: An Exotic Proposal
Although stablecoins could be more immediate in solving the debt problem, there also have been proposals that make use of Bitcoin as a solution. On July 2024, U.S. Senator Cynthia Lummis introduced the Bitcoin Act, which calls for the establishment of a national Bitcoin reserve. According to that proposed legislation, the U.S. could buy up to 1 million Bitcoin tokens and put them into reserve, using this as a store of value to shore up the balance sheet of the country.
Lummis says holding Bitcoin will cover off part of the nation’s $23 trillion national debt within 20 years – essentially with rising Bitcoin prices. When it appreciates enough, the U.S. could, he says, pay off portions of its Bitcoin holdings to retire debt. But this proposition, he claims has attracted skepticism, given the enormous size of the national debt outstanding today.
At the time of November 2024, Bitcoin market capitalization is approximately $1.7 trillion, and the total supply of Bitcoin capped at 21 million tokens. In order to pay off national debt entirely using Bitcoin, each BTC would have to be valued at more than $35 million, which is an astronomical figure that is unlikely to occur anytime soon, even when prices for Bitcoin continue to rise.
Will Bitcoin Price Hit $150,000?
Despite many warnings that Bitcoin cannot do anything to address the national debt, Bitcoin has continued to rocket. Until November 2024, it had been trading above $90,000, with many analysts predicting it could reach $100,000 by year-end. Some technical indicators even go as far as hinting that Bitcoin could reach $150,000 in coming months.
From the end of September to November 2024, Bitcoin’s rally reached a near 70% gain. If there is any rally of this level, it will catapult Bitcoin higher to new dimensions. The indicator MACD has presented a positive upward moving momentum and will continue it. Caution should be issued. The RSI stands at 72, meaning that Bitcoin is overbought and that going forward it is going to drop in price.
Is Bitcoin the Answer to U.S. Debt?
Being that the price of Bitcoin can rise exponentially over the long term, this gives the means for paying off the national debt a speculative feel. The debt of the United States is massive- currently at $35.46 trillion – larger than the entire market capitalization of Bitcoin. Even if Bitcoin prices reached new all-time highs, it is unlikely that the United States would realistically be able to sell enough Bitcoin to pay off its debt.
It is really an ambitious proposal, but a national Bitcoin reserve is perhaps the only institutional form left for this country’s debt crisis to find a sustainable solution. Though promising, would Bitcoin really be less volatile than U.S. Treasury bills in times of real financial distress? Would Bitcoin navigate other potential challenges from regulators better than traditional mechanisms?
Conclusion: Can Crypto Solve the U.S. Debt Crisis?
Indeed, the U.S. is in a critical debt crisis that may break its leadership position in the world market. Although stablecoins like dollar-pegged stablecoins Tether and USD Coin will help dampen part of the U.S. Treasury debt and cool down the situation, many issues are ahead. Regulation for digital currencies may ensure that the U.S. remains in control of the world of finance; however, there is much work to be done.
Bitcoin, though an exciting asset in a diversified portfolio, would likely be the least of what countries want to pay off the national debt. The price may have continued its rise, but it is still not an asset of certainty, and it is unclear if the trillions of national debt will be resolved by this asset. For now, stablecoins remain a more practical means toward countering the U.S. debt; however, Bitcoin’s role in this equation must be handled with caution.
That is to say, crypto may have a niche in a post-singularity American finance landscape, but it’s as likely to solve the debt crisis with Bitcoin or stablecoins alone as it is to “cure” the debt crisis with Bitcoin or stablecoins alone. More to the point, solving the debt crisis will probably take a more holistic effort: some fiscal reform; good managerial moves for debt; and maybe innovative financial tools to enhance their effectiveness.
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