Bitcoin could jump nearly 70% if US defaults on debt, says Standard Chartered analyst
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Bitcoin could climb by $20,000 if a US default happens, Standard Chartered’s Geoff Kendrick said.
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Not every crypto would behave the same way, with some behaving more like stocks, he told Insider.
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“So actually the optimal trade would probably be long bitcoin, short ethereum.”
With the looming debt ceiling crisis showing no signs of resolution, both bond and equity markets have become nervous.
But while some investors fear a historic default, one asset could potentially rise through such a situation: Bitcoin.
Describing a US default as a “low probability, high impact event”, Geoff Kendrick, head of FX research at Standard Chartered, said it could send bitcoin jumping by around $20,000, representing a 68% increase from today level.
He told Insider that’s because the top cryptocurrency by market capitalization has a reputation for performing well during periods of stress and is often seen as a safe haven, especially as it’s a decentralized asset.
But Kendrick doesn’t think bitcoin will rally in a straight line in the event of a U.S. default, saying “it’s probably going to come a little bit lower on day one or day two or week.” In that case, bitcoin could fall by $5,000 initially, and then jump by $25,000, he estimated.
And not all cryptocurrencies will follow bitcoin’s behavior, he added, with others like ethereum trading more like stocks, likely to fall into a default.
“So actually the optimal trade would probably be long bitcoin, short ethereum. That kind of mix would probably be a good expression of this,” Kendrick said.
If Congress fails to lift the $31.4 trillion federal debt ceiling, a default could come sometime this summer — an event that could cause seismic ruptures in global markets. On Tuesday, Treasury Secretary Janet Yellen warned that a default would be catastrophic for the US economy, triggering mass unemployment, defaults and higher rates “forever”.
With House Republicans and the White House still far from a deal to raise the debt ceiling, the yield on three-month Treasuries recently jumped to a 22-year high as they would mature around a potential default date.
Meanwhile, bitcoin is still recovering from a massive selloff that began in late 2021 and continued through much of 2022 as the Federal Reserve began an aggressive tightening cycle.
But bitcoin is up nearly 80% so far in 2023 and recently neared $30,000 as First Republic Bank’s woes reignited fears about the financial sector.
For his part, Kendrick is already bullish on bitcoin, saying in a note on Monday that it could rise to $100,000 by the end of 2024 due to banking turmoil, bitcoin halving and the expected end of Fed rate hikes, among other things. it did not mention the risk of default in the United States.
“While there are still sources of uncertainty, we believe the path to the $100,000 level is becoming clearer,” he wrote.
Read the original article on Business Insider
