Bitcoin could climb by $20,000 if a US default happens, Standard Chartered’s Geoff Kendrick said. Not every crypto would act similarly, with some behaving more like equities, he told Insider. “So actually, the optimal trade would probably be long bitcoin, short ethereum.” Loading Something is loading.
Thanks for signing up!
Access your favorite topics in a personalized feed while you’re on the go.
With the looming debt ceiling crisis showing no signs of a resolution, both bond and equity markets have become jittery.
But while some investors are fearful of a historic default, one asset could potentially rise through such a situation: Bitcoin.
Describing a US default as a “low-probability, high-impact event,” Geoff Kendrick, head of FX research at Standard Chartered, said it may cause the bitcoin to jump by about $20,000, representing an increase of 68% from current levels.
He told Insider that’s because the top cryptocurrency by market cap has a reputation for performing well in periods of stress and is often seen as a safe haven, especially as it is a decentralized asset.
But Kendrick doesn’t think bitcoin would rally in a straight line in the event of a US default, saying “it probably comes a bit lower on day one or day two or week.” In that case, bitcoin could dip by $5,000 initially, then jump by $25,000, he estimated.
And not every cryptocurrency would follow bitcoin’s behavior, he added, with others like ethereum trading more like stocks, which would likely fall in a default.
“So actually, the optimal trade would probably be long bitcoin, short ethereum. That sort of mix would probably be a good expression of this,” Kendrick said.
If Congress fails to lift the $31.4 trillion federal debt limit, a default could come sometime in the summer — an event that could cause seismic ruptures global markets. On Tuesday, Treasury Secretary Janet Yellen warned a default would be catastrophic for the US economy, sparking mass unemployment, payment failures, and higher rates “into perpetuity.”
With House Republicans and the White House still far from a deal to raise the debt ceiling, yields on three-month Treasurys recently jumped to a 22-year high, as they would mature around a potential default date.
Meanwhile, bitcoin is still recovering from a massive sell-off that began in late 2021 and continued through much of 2022 as the Federal Reserve embarked on an aggressive tightening cycle.
But bitcoin has rallied nearly 80% so far in 2023 and recently neared $30,000 as First Republic Bank’s woes reignited fears over the financial sector.
For his part, Kendrick is already bullish on bitcoin, saying in a note on Monday that it could surge to $100,000 by the end of 2024 due to bank turmoil, bitcoin halving, and the expected end of Fed rate hikes, among other things, though it didn’t mention the risk of a US default.
“While sources of uncertainty remain, we think the pathway to the USD 100,000 level is becoming clearer,” he wrote.