In keeping with a recent report by crypto asset manager Bitwise, Bitcoin (BTC) is well-positioned to operate as “portfolio insurance” against sovereign default risks. The report comes at a time when global debt-to-GDP levels are breaching recent highs, sparking concerns a few potential global debt crisis.
Bitcoin: A Solution For Global Debt Defaults?
The report highlights Bitcoin as an ‘interesting alternative’ for investors looking for to preserve their wealth during scenarios equivalent to sovereign defaults or hyperinflation. It states:
In a theoretical model, Bitcoin can function “portfolio insurance” against the default of a basket of major sovereign bonds with a current “fair value” of around 219k USD based on this model.
To supply context, global public debt levels are steadily climbing. Recently, the US public debt surpassed $36 trillion, equating to 123% of the country’s GDP. What’s more concerning is the accelerated pace of debt growth since September 2024, amounting to $917 billion in only a brief span.
This rising fiscal debt isn’t limited to the US. Other major economies, equivalent to France and the UK, are also experiencing unprecedented increases in public debt, raising alarm bells for bond investors.
The Bitwise report cites Bitcoin as a compelling alternative to gold in such scenarios. It highlights that Bitcoin’s decentralized network architecture essentially makes it a ‘trustless system,’ setting it aside from sovereign bond contracts, which depend on the issuer’s ability to repay its debt.
The report also mentions that the weighted average default probability for G20 nations over the following decade is currently 6.2%. As compared, the US has a weighted average default probability of around 4.5%. The report notes:
Based on this model, this is able to imply a “fair value” of Bitcoin of around $219,000 per BTC already. Within the unlikely event that each one G20 sovereign bonds would default concurrently, the theoretical “fair value” of 1 single BTC inside this model would increase to roughly $3.5 million.
That said, the report emphasizes that major economies are unlikely to default within the short-term. Nevertheless, the aforementioned model gives insight into where BTC’s price might soar if such a scenario were to occur.
Bitcoin Holding Regular Amid Macro Uncertainties
For the reason that March 2020 coronavirus crash, Bitcoin has largely remained resilient, despite facing significant macroeconomic headwinds over the past five years. As an illustration, BTC price exhibited resiliency after the US Federal Reserve announced its intention to slow rate of interest cuts in 2025.
Similarly, the resurgence of the Bitcoin ‘kimchi premium’ during South Korea’s political crisis in December highlighted investors’ preference for BTC as a wealth-preservation asset in times of uncertainty. At press time, BTC trades at $105,761, up 1.2% up to now 24 hours.
Featured Image from Unsplash.com, Charts from Bitwise and TradingView.com