The US National Debt and its Relation to Crypto Prices
In June 2023, the United States reached its previously established debt ceiling, but in the interest of not crashing the economy, it suspended it until January 2025—meaning we are about to hit it again.
What's even more interesting is that the United States is projected to hit it sometime after January 16th but before January 23rd—meaning it will directly coincide with the inauguration of Donald Trump.
But what does that mean for you and for the price of cryptocurrency in the coming year? And what does the US plan to do about its debts? We have all these answers and more so keep reading.
What is the US National Debt?
As of the writing of this article, the United States owes a massive $36 trillion to its creditors, mostly due to the fact that it spends much more than it brings in, with the most expensive aspects of the budget being the US Military, Social Security, and Medicare.
Of course, this debt didn’t come overnight, and the national debt has been a constant struggle since 1939. In fact, the US government has simply always raised the debt ceiling instead of thinking of and implementing ways to pay it off.
Unfortunately, the US is reaching a point where it cannot extend the ceiling any further. While we suspect they may still be able to do so in 2025, at some point, they will no longer be able to receive any loans, meaning we are just putting off the inevitable. Many articles have additionally stated that current Congressional members are unwilling to extend the debt any further without a plan in place to pay it off.
How Can the US Reduce its Debt?
Sadly, there are a ton of ways the United States COULD reduce its debt without affecting the life of the everyday individual. The problem is, due to government interests and the rich, many of the ways that would be the most painless for society never pass.
For example, it was suggested last year that tax loopholes for the rich be closed. But of course, the rich we are talking about is Congress and the Senate themselves (both of which earn $200,000+ per year), so it was voted down. (We aren’t surprised). But if it were to pass, this would be one of the most painless ways for the United States to recoup enough money to pay its creditors.
Additionally, the United States could allow more immigration. Legal immigration would bring more consumers and labor into the country to help boost the GDP—especially as the birth rate in the country declines. It would also bring in more people who would pay into the expensive Social Security and Medicare programs. But, due to the current sentiment against immigrants, this is unlikely to happen.
Because America is the land of the 1% who don’t care about anyone else, the tactics that have been suggested that are likely to pass are as follows:
· Raise the minimum retirement age to 70 years old
· Add a nationwide sales tax
· Cut spending in programs like SNAP and Medicare
What do all of these methods have in common? They affect the poor and the middle class, making life tougher for the masses and negatively affecting the economy. Sadly, this is probably the future we are looking at.
How Does This Affect Cryptocurrency?
The prices and sales of cryptocurrency have long been closely tied to the state of the economy, and no matter what the government chooses to reduce debt, we expect the cryptocurrency markets to react.
Unfortunately, historically, the price of Bitcoin has always dropped both when the debt ceiling was raised, and when measures were taken to pay off debt. We suspect this is because Bitcoin is a risky investment, so when individuals are uncertain about the future of either their currency or their benefits, they withdraw their investments and put them into something more certain, like gold.
The largest drop in recent history was actually under Donald Trump in 2017 when he signed to suspend the debt ceiling until 2021. The result was a 6% drop in BTC price over the next few days.
In the times since, when Biden extended the debt ceiling or signed a deal to try to mitigate the deficit, the drop was more in the range of 2-3% but the point remains the same. Whether Donald Trump extends the ceiling or signs a measure for reducing the debt, we expect the BTC price to drop around his inauguration.
Should You Sell Your BTC?
When you read a dismal article such as this one, it can be easy to think that you should exit the market now. We don’t agree. We will explain why below, but we would like to remind you that holding or selling Bitcoin is an extremely personal decision and that we cannot advise you as to whether or not you should sell based on your personal situation.
That being said, though we expect a drop in BTC, financial analysts are predicting overall growth for the token in 2025. This means that even though dark days may be ahead, we don’t expect the drop to be more than 5%, and we expect the token to rally later in the year. Therefore, we recommend you keep hodling your Bitcoin.
Although the United States isn’t doing so hot, it’s important to remember that other countries around the world are doing better, and Bitcoin is a global currency. We suspect the German government, in particular, is currently kicking themselves for selling their BTC in the summer of 2024.
So, if you can’t handle watching your Bitcoin dip, then maybe you should sell, but overall, we think that Bitcoin is still one of the best investments and a hedge against inflation—something which may become critical if the United States successfully raises its debt ceiling yet again in 2025. Just be sure that it is in a cold wallet and not in a software one that could be affected by a company going under.
