Bitcoin Emerges as a Top Asset for Risk Hedging Amid Potential U.S. Default

In a recent study conducted by Bloomberg’s Markets Live Pulse, Bitcoin has emerged as one of the preferred assets for hedging against the risks associated with a possible U.S. default, joining the ranks of gold and U.S. Treasuries.

The survey, which included responses from 637 institutional and private investors, highlights the growing significance of Bitcoin in the global financial landscape.

The survey, conducted from May 8-12, aimed to gauge investor sentiment ahead of the upcoming meeting between U.S. President Joe Biden and Congress, where the U.S. debt ceiling will be discussed. The majority of participants expressed concerns over the potential default and signaled their interest in hedging against associated risks. The following assets were identified as potential hedges in the event of a default:

1. Gold: 51.7% of institutional investors and 45.7% of private investors expressed interest in hedging with gold.
2. U.S. Treasuries: 14% of institutional investors and 15.1% of private investors favored U.S. Treasuries as a hedge.
3. Bitcoin: 7.8% of institutional investors and 11.3% of private investors saw Bitcoin as a viable hedge.

Notably, Bitcoin made its debut as the third most popular asset for risk hedging, surpassing traditional currencies such as the U.S. dollar, the Japanese yen, and the Swiss franc. Both institutional and private investors view Bitcoin as an attractive store of value, providing protection against potential losses associated with the collapse of traditional currencies like the U.S. dollar.

The inclusion of Bitcoin among the top three assets in the event of a U.S. default underscores the cryptocurrency’s growing importance in the global economy and financial system.

The looming U.S. debt ceiling issue has raised concerns in the market. U.S. Treasury Secretary Janet Yellen recently warned of a potential catastrophic default by June 1 if no decision is made to suspend or raise the debt ceiling. President Biden also emphasized the grave consequences a default would have on the global economy.

According to the Bloomberg survey, nearly 60% of respondents believe that the risks associated with the current situation are higher compared to the 2011 debt ceiling crisis. Additionally, 41% of respondents expressed concerns that a default could directly threaten the U.S. dollar’s status as the world’s leading reserve currency.

Denelle Dixon, CEO of Stellar, suggests that stablecoins could potentially strengthen the position of the U.S. dollar in the global financial market. However, analysts at the Cato Institute argue that the issuance of central bank digital currencies (CBDCs) in the U.S. would only undermine the dollar’s international standing.

As the U.S. debt ceiling debate unfolds, investors are increasingly turning to alternative assets like Bitcoin to protect their portfolios against potential risks, solidifying the cryptocurrency’s role as a valuable hedging instrument in times of financial uncertainty.