The possibility of a US government debt default, looming on June 1st if lawmakers fail to raise the current debt ceiling of $31.4 trillion, has sparked discussions among investors regarding alternative safe haven assets. In a recent survey conducted by Bloomberg’s Markets Live (MLIV) Pulse, it was found that retail investors are increasingly considering Bitcoin as a potential “safe haven” asset in the event of a debt default, instead of relying solely on the US dollar.
Survey Findings:
The survey results revealed that among professional investors, gold topped the list as the preferred investment choice in the event of a debt default, with 51.7% of respondents selecting it. Retail investors also showed a strong preference for gold, with 45.7% choosing it. The second most favored option was US Treasury bonds, selected by 14% of professional investors and 15.1% of retail investors. Bitcoin ranked third, with 7.8% and 11.3% of professional and retail investors, respectively, considering it. The survey also indicated that 7.8% of professional investors and 10.2% of retail investors would opt for the US dollar.
Potential Implications:
In the event of a US government debt default, the survey highlighted that 41% of investors anticipated a weakening of the US dollar, potentially accelerating the global trend towards de-dollarization. Meanwhile, Bitcoin has shown a tendency to rise in value during periods of financial uncertainty, as demonstrated by recent events surrounding the collapse of Silicon Valley Bank. Analysis from Standard Chartered Bank suggests that a US debt default could push the price of Bitcoin up by an additional $20,000.
Regarding gold, many analysts predict a significant increase in its value if a US debt default occurs. A weakening US dollar could further support gold prices, especially considering ongoing gold purchases by central banks and global monetary policy easing measures.
In the case of US Treasury bonds, UBS Bank forecasts a potential increase in their value if the debt ceiling issue remains unresolved. This scenario could lead to an economic recession, prompting investors to view US Treasury bonds as a relatively safe “haven” asset.
Beyond the popular choices of gold, US Treasury bonds, Bitcoin, and the US dollar, the survey participants also expressed a tendency to consider traditional “safe haven” currencies such as the Japanese yen and the Swiss franc.
Conclusion:
The risk of a US government debt default is a growing concern, posing a potential threat to financial markets worldwide. Recent discussions between President Joe Biden and House Speaker Kevin McCarthy on May 16th indicate the seriousness with which this issue is being addressed at various levels of government. Although the idea of the world’s largest economy defaulting on its debt may seem unfathomable, it is a current consideration that cannot be ignored.
The MLIV Pulse survey reflects the sentiment of approximately 60% of respondents who believe that the risk of a US government debt default is higher now compared to the debt crisis experienced in 2011, which was the worst in US history.
Jason Bloom, Director at Invesco, acknowledged the unprecedented risk, emphasizing the deep divisions among voters and within the US Congress. The differing approaches by both sides of the political spectrum suggest a potential delay in taking timely and unified action.
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