According to a recent Report Bitcoin (BTC) is well-positioned to act as “portfolio insurance” against absolute default risks, according to crypto asset manager Bitwise. The report comes at a time when global debt-to-GDP levels are breaching new highs, raising concerns about a potential global debt crisis.
Bitcoin: A Solution to Global Debt Defaults?
The report highlighted Bitcoin as an ‘interesting option’ for investors looking to preserve their wealth during situations such as a potential default or hyperinflation. It states:
In a theoretical model, Bitcoin could act as “portfolio insurance” against the default of a basket of major sovereign bonds with a current “fair value” of around 219k USD based on this model.
To provide context, global public debt levels continue to rise. Recently, the US public debt surpassed $36 trillion, equivalent to 123% of the country’s GDP. Most alarming is the rapid pace of debt growth from September 2024, amounting to $917 billion in just a short period of time.
This mounting financial debt is not limited to the US. Other major economies, such as France and the UK, are also experiencing unprecedented increases in public debt, raising alarm bells for bond investors.
Bitcoin is described as a compelling one in the BitWise report Alternative Gold in such circumstances. It highlights that Bitcoin’s decentralized network architecture essentially makes it a ‘trustless system’, differentiating it from sovereign bond contracts, which depend on the issuer’s ability to repay its debt.
The report also states that the average default probability for G20 countries over the next decade is currently 6.2%. In comparison, the US has a weighted average default probability of about 4.5%. The report notes:
Based on this model, it already shows a “fair value” of Bitcoin of $219,000 per BTC. In the unlikely event that all G20 sovereign bonds default simultaneously, the theoretical “fair value” of 1 single BTC within this model would increase to approximately $3.5 million.
That said, the report emphasizes that major economies are unlikely to default in the short term. However, the above model provides an insight into where the price of BTC could go if such a situation were to occur.
Bitcoin Holding Steady Amidst Macro Uncertainties
Since the March 2020 coronavirus crash, Bitcoin has been largely resilient despite facing significant macroeconomic crises over the past five years. For example, BTC price displayed Flexibility after the US Federal Reserve announced its intention to slow interest rate cuts in 2025.
Similarly, the Resurrection The bitcoin ‘kimchi premium’ during South Korea’s political crisis in December highlighted investors’ preference for BTC as a wealth-storage asset in times of uncertainty. At press time, BTC is trading at $105,761, up 1.2% in the last 24 hours.
Featured images from Unsplash.com, charts from Bitwise and TradingView.com
