$40 Trillion Debt Load Fails to Boost Bitcoin as Expected
The $40 trillion U.S. national debt milestone has been seen as a potential boon for Bitcoin, as investors consider the cryptocurrency an inflation hedge and safe haven asset. However, a closer look at the data reveals that this relationship is not as strong as it seems.
A correlation between Bitcoin and gold prices hit a multi-year high in early September, with a 90-day correlation coefficient of just over 0.5. This metric was widely shared as proof that the two assets have merged into one big safe haven. However, this relationship is actually quite weak, and a strong correlation would be above 0.8.
Bitcoin has historically behaved like a risk asset during times of financial stress, such as the COVID-19 crash in March 2020 and the inflation crunch of 2022. In these situations, it tends to sell off more sharply than stocks. This is not what you would expect from an inflation hedge or safe haven asset.
The real yield problem also undermines the debasement trade idea. When bond investors demand higher yields due to rising debt levels, a Treasury note paying a decent return after inflation becomes more attractive compared to a risky digital asset like Bitcoin.