The United States is set to pay more than $1 trillion in debt interest next year, which is the equivalent of three or more Bitcoin market cap at the current prices.
Commentators think that Bitcoin (BTC) bulls do not need to wait long for the US to begin printing money once more. The latest analysis of the United States macroeconomic data has made one market strategist to project a quantitative tightening (QT) ending to avert a “catastrophic debt crisis.”
Fed Will Have ‘No Choice’ With Rate Cuts
The United States Federal Reserve continues to eliminate Liquidity from the financial system to resolve inflation, reversing years of COVID-19-era money printing. While interest rate hikes seem set to continue dropping in scope, some now think that the Fed will soon have just one option – to stop the process altogether.
On January 27, Sven Henrich, founder of NorthmanTrader, summarized:
“Why the Fed will have no choice but to cut or risk a catastrophic debt crisis. Higher for longer is a fantasy not rooted in math reality.”
Henrich uploaded a chart that showed interest payments on current US government expenditure, now hurtling toward the $1 trillion mark per year.
That is a huge number, the interest comes from US government debt being more than $31 trillion, with the Fed printing trillions of dollars since March 2020. Since then, interest payments have increased by 42%, according to Henrich.
This phenomenon was noticed elsewhere in the crypto space. Popular Twitter account Wall Street Silver was seen comparing the interest payments as a portion of US tax revenue. It wrote:
“US paid $853 Billion in Interest for $31 Trillion Debt in 2022; more than Defense Budget in 2023. If the Fed keeps rates at these levels (or higher) we will be at $1.2 trillion to $1.5 trillion in interest paid on the debt.”
“The US govt collects about $4.9 trillion in taxes.”
Such an occurrence may be music to the ears of those with considerable Bitcoin exposure. Periods of ‘easy’ liquidity have now corresponded with the growing appetite for risk assets across the mainstream investment world.
The Fed’s unwinding of the policy accompanied Bitcoin’s 2022 bear market, and a ‘pivot’ in interest Rate hikes is therefore seen by many as the first sign of the ‘good’ times coming again.
Buy Bitcoin NowCrypto Pain Before Joy?
But, not everyone agrees that the effect on risk assets, including crypto, will be all-out positive before that.
As reported previously, ex-BitMEX CEO Arthur Hayes thinks that chaos will come first, tanking Bitcoin and altcoins to new lows before any form of long-term recovery comes up.
In case the Fed faces a total lack of options to avert a meltdown, Hayes thinks that the damage will have already been done before QT offers quantitative easing.
He wrote in a blog post this month:
“This scenario is less ideal because it would mean that everyone who is buying risky assets now would be in store for massive drawdowns in performance. 2023 could be just as bad as 2022 until the Fed pivots.”
