Moody’s recently downgraded the U.S. credit rating outlook to “negative” from “stable.” This has led to speculation that Bitcoin could be a safe haven asset for investors looking to hedge against the potential risks of a weakening U.S. economy.
Moody’s Investors Service has indicated a potential downgrade of the U.S.’s top credit rating. The downgrade is attributed to large fiscal deficits, a decline in debt affordability, and continued political polarization within the U.S. Congress.
While the U.S. still maintains an “AAA” rating for the moment, the credit rating agency’s downgrade reflects a growing concerns about the U.S. government’s debt and its inability to handle fiscal responsibilities.
Without measures to cut spending or increase revenue, Moody’s warns, fiscal deficits could persist at a substantial level. This would significantly undermine debt affordability, especially in the face of rising interest rates.
Moody’s decision comes after Fitch Ratings—considered one of three most significant rating agencies in the world (the others being Moody’s and Standard & Poor’s)—downgraded the country’s sovereign rating in August after months of political tension surrounding the U.S. debt ceiling.
Following the downgrade, Bitcoin briefly surged above $30,000.
The downgrade shifted the U.S. out of the category of nations with the highest credit ratings evaluated by Fitch, one of three firms assessing governments and companies’ ability to meet their financial obligations.
Moody’s senior vice president William Foster mentioned that any substantial policy response to address the declining fiscal strength is unlikely to occur until 2025. This delay is attributed to the constraints imposed by the political calendar in the upcoming year.
Moody’s decision to revise the U.S. credit outlook also coincides with heightened fiscal scrutiny, given the escalating national debt levels and political disagreements obstructing agreement on budgetary management.
This has sparked speculation that Bitcoin could serve as a safe haven asset for investors seeking to hedge against potential risks associated with a weakening U.S. economy.
Despite Bitcoin’s price volatility, its appeal lies in its decentralized nature and limited supply, making it an attractive investment choice for those seeking portfolio diversification and a hedge against inflation and other economic risks.
Capped at 21 million coins, Bitcoin could be a hedge against inflation and currency devaluation, particularly amid concerns about the U.S.’s fiscal strength. Furthermore, the global acceptance of Bitcoin as a digital currency enhances its attractiveness for investors seeking diversification beyond traditional assets.
As the financial landscape evolves, Bitcoin’s unique characteristics may position it as a potential hedge against uncertainties arising from U.S. fiscal challenges.
Bitcoin vs. traditional investment vehicles
While conventional options like stocks, bonds, and real estate boast a proven history of providing enduring growth and stability, Bitcoin and other cryptocurrencies fall into the category of speculative investments.
According to Charles Schwab, Bitcoin doesn’t align with current traditional asset allocation models, given its status as neither a traditional commodity nor a conventional currency.
Last week, Bitcoin experienced a temporary surge, reaching over $35,000. The boost was driven by optimism about the possible approval of exchange-traded funds (ETFs) and concerns regarding inflation and market correction.
The uptick in Bitcoin’s value gained momentum amid growing expectations that the U.S. Securities and Exchange Commission (SEC) might greenlight ETFs directly invested in Bitcoin.
Some investors considered Bitcoin a safe haven amid economic and geopolitical uncertainties, contributing to the price spike. However, economist and crypto skeptic Peter Schiff had predicted a market crash before the launch of a spot Bitcoin ETF, expressing concerns that early buyers might sell to capitalize on profits, potentially triggering a market downturn.
Despite the volatility and diverse opinions, the increase in Bitcoin’s price signifies the escalating interest and optimism surrounding the potential approval of Bitcoin ETFs and its perceived role as a safe haven asset.