$40 Trillion Debt Load Fails to Deliver on Bitcoin Promises

The $40 trillion national debt milestone has sparked debate among crypto investors about its impact on Bitcoin's price. The 'debasement trade' theory suggests that a rising national debt can boost the value of inflation hedges like gold, bonds, real estate, and Bitcoin.

Bitcoin rallied 23% in late August, climbing from the low $60,000s to the high $70,000s, alongside a rise in gold prices. The dollar slipped, leading some to conclude that unsustainable sovereign debt is bullish for a currency with a hard cap of 21 million coins.

However, an examination of the data reveals that the correlation between Bitcoin and gold is weak, at just above 0.5. This means that the two assets tend to move together, but not always at the same speed or in the same direction.

In reality, Bitcoin behaves more like a risk asset than a safe haven, selling off sharply during times of crisis, such as the COVID-19 crash and the inflation crunch of 2022. It has also tightened its statistical relationship with the volatile Nasdaq Composite stock market index over the last year.

The real yield problem further undermines the debasement trade theory, as a rising national debt can lead to higher bond yields, making Treasury notes more attractive than Bitcoin. With no dividends or staking opportunities, Bitcoin becomes less appealing in times of fiscal uncertainty.