How crypto could save the US from a debt crisis

Former House Speaker Paul Ryan’s latest column published in the Wall Street Journal states that cryptocurrency can stave off the US debt crisis. Ryan argues that America’s $35.46 trillion and rising debt threaten the U.S. dollar’s status as the global reserve currency. Stablecoins could delay the crisis as they emerge as purchases of US debt.

Stablecoins as a source of demand for US debt

Dollar-backed stablecoins like USDT (USDT) and USD Coin (USDC) hold over $95 billion in U.S. Treasury bonds, according to recent reserve reports. As stablecoins continue to grow, providing fiat leverage to traders and encouraging the adoption of cryptocurrencies, they could absorb U.S. debt through consistent demand for treasury bills.

China, the traditional buyer of America’s debt and the second-largest holder of treasury bonds after Japan, has reduced its exposure to less than $1 trillion since April 2022, from $1.27 trillion in 2013. Experts point to geopolitical concerns and changing trade policies as the main reasons for this increase. China reduces US debt stocks.

The emergence of stablecoin issuers as buyers of treasury bills reduces dependence on traditional buyers and eases concerns about a decline in their assets due to geopolitical instability and a changing political climate in the wake of the US presidential election.

Tether’s Oct. 31, 2024 report shows the stablecoin issuer holds $84.548 billion in U.S. government debt, and Circle’s Nov. 12 report from BlackRock shows $11.127 billion in treasury bond holdings.

Tether’s October 31 report | Source: Independent auditor’s report Circle’s US treasury bond holdings | Source: BlackRock

Ryan acknowledges that the dollar’s status as the global reserve currency is at risk due to declining foreign interest, which could negatively impact the United States’ ability to borrow cheaply and maintain economic influence.

Stablecoins may emerge as a potential alternative to stabilize the situation until further measures are taken to alleviate the crisis.

Hoover Institution report suggests US should lead digital currency space

One of the prominent arguments against the adoption of stablecoins and their integration into the legacy financial system is the loss of the ability to impose sanctions and control the flow of funds globally.

Dollar-backed stablecoins are issued on a public, permissionless blockchain and, unlike China’s digital financial infrastructure, embody American values ​​of freedom and openness.

The Hoover Institution’s report, “Digital Currencies: The United States, China, and the World are at a Crossroads,” highlights China’s first-mover advantage with the launch of its central bank digital currency and its impact on global rules and standards for digital finance.

The report does not advocate the creation of a digital dollar; instead, it emphasizes an urgent need for authorities to develop standards to counter growing Chinese influence. The US’s transition to a digital economy will be better enabled by stablecoins, and it will take time to write the necessary regulations and implement the infrastructure to ensure the success of this transition.

The report identifies steps in the process, such as coordinating with G7 countries and other democratic partners on the principles and standards of a global digital financial system that enhances, rather than diminishes, privacy, accountability, security and the rule of law.

If the necessary regulatory framework and policies are in place, stablecoins could pave the way for America to regain its economic influence as a superpower.

Could Bitcoin solve the US’s national debt problem?

U.S. Senator Cynthia Lummis formally introduced the Bitcoin Act in July 2024. Sen.Lummis recommended creating a national Bitcoin reserve containing 1 million BTC tokens that would serve as a store of value to shore up America’s balance sheet.

While Senator Lummis claims that the United States will be debt-free in 20 years after profiting from the sale of Bitcoin, mathematical facts and statistics indicate that this is less likely to happen. The national debt of the United States is $35.46 trillion, and the market value of Bitcoin is $1.739 trillion.

In order for one million Bitcoin tokens to pay off the national debt, the value of each BTC must be $35.46 million. With its limited supply, Bitcoin has 21 million tokens and as of November 15, its market cap is higher than Silver. Market cap is less likely to grow faster than the total value of world assets such as Gold, Silver and stocks.

Bitcoin’s rise to $93,265 on Wednesday, November 13 boosted investors’ confidence to $100,000 by the end of the year. Between September and November 13, Bitcoin gained 70% in value. Another 70 percent rise could push BTC towards the $150,000 target.

Technical indicators on Bitcoin’s weekly price chart show fundamental positive momentum in the BTC price trend. Moving average convergence, divergence flashes green histogram bars above the neutral line.

BTC/USDT weekly price chart | Source: Tradingview.com

Investors need to be careful when opening long positions in Bitcoin, as the relative strength index is reading 72, signaling that BTC is overvalued. Typically this is considered a sell signal or sign of an impending correction in the token.

Disclosure: This article does not constitute investment advice. The content and materials on this page are for educational purposes only.