What will happen to Bitcoin this week if the US government defaults?

Several pundits have been speculating what will happen to Bitcoin this week if the US government runs out of funds and defaults on the first of June. However, Mikkel Morch, feels that a default could significantly strengthen Bitcoin.

By Mikkel Morch

Not only US banks are struggling with problematic balance sheets and defaults but also the Federal government itself is swiftly reaching its debt limits and running short of cash potentially as early as June this year.

If the United States defaults it will be an event not only shaking the Unites States, but all financial systems and the entire world economy will see negative consequences far and wide.

The above event could also negatively impact the price of Bitcoin and other cryptocurrencies as part of a further risk-off approach by investors. However, when traditional banks fail and with them the slow, expensive, centralized payment systems that go along with them, more people could turn to decentralized finance and its cryptocurrency use cases. That is exactly what we have seen in countries with large scale or government defaults, where people have indeed increased their migration to Defi and cryptocurrencies. Present rampant inflation rates only add fuel to this migration. Therefore, a rather strong and bullish argument could be built on a US default situation as migration from traditional finance and USD to these new financial systems and currencies including Bitcoin would be logical.  This is backed up by data showing that Bitcoin has again set a new positive record in daily transaction volumes which is an indicator that more and more people see BTC – and other cryptocurrencies - as practical payment tools and not just a store of value.

In order to get over the last hurdles for Defi and the cryptocurrency space generally more regulation is needed to weed out bad actors as well as an even better integration into the traditional financial space is needed. As the cryptocurrency and Defi space grows, underlying technology, safety and speeds improve. Altogether, the above is bound to create a more bullish sentiment for the area and in itself reinforce the asset space even further.

Author Bio

Mikkel Morch, is Chairman and Non-Executive Director at ARK36.