The Hivemind, a crypto analyst, said a fiscally disciplined United States represents a bearish scenario for crypto assets. "The U.S. getting its house in order is kind of the bear case for crypto. But that's never going to happen," the analyst said.
This perspective directly challenges the popular "debasement trade" theory, which argues that rising U.S. national debt is bullish for inflation hedges like Bitcoin. The national debt surpassed $40 trillion in August, up from $36 trillion a year earlier. A decade ago, the figure stood at $19 trillion, with the most recent trillion added in less than five months.
The debasement trade thesis posits that increased government debt leads to more money in circulation, weakening the dollar and boosting assets traditionally seen as inflation hedges—gold, bonds, real estate, and Bitcoin.
Bitcoin rallied roughly 23 percent in late August, climbing from the low $60,000s into the high $70,000s in its sharpest three-day move since 2023. Gold prices also rose during this period as the dollar declined slightly. Many market observers cited this price action as validation of Bitcoin's role as a hedge against unsustainable sovereign debt, pointing to its hard cap of 21 million coins as a core differentiator.
However, historical evidence for Bitcoin as a reliable inflation hedge is weak. The 90-day correlation between Bitcoin and gold reached a multi-year high in early September, just above 0.5. Market participants widely cited this as proof of their convergence into a single safe haven. A correlation just above 0.5, however, indicates only a weak-to-moderate statistical relationship—the assets move together inconsistently and at different velocities, falling short of a strong hedge convergence.
Bitcoin has consistently underperformed during financial stress. During the March 2020 COVID-19 crash, it sold off more sharply than equities. The pattern repeated in 2022's inflation crunch. When financial systems face immediate cash needs, Bitcoin has historically ranked among the first assets liquidated.
Debt crises trigger liquidity events. In such scenarios, Bitcoin has historically undergone significant sell-offs despite its purported insurance function. Over the past year, Bitcoin's correlation has tightened more with the volatile Nasdaq Composite than with gold prices, suggesting a stronger tie to risk-on equity markets than to traditional safe-haven assets.
A debt crisis typically prompts bond investors to demand greater compensation, pushing real yields higher. Sustained real yield increases directly compete with Bitcoin's investment proposition, potentially making traditional debt instruments more attractive.
