- According to Grayscale Investments’ Zach Pandl, increased US debt would put a strain on bonds and reduce confidence in fiat currencies.
- Pandl pointed out that investors would be looking for an alternative means of storing value, which would favor Bitcoin, Ethereum, and Zcash.
The chief research officer of Grayscale Research, Zach Pandl, connected the recent bond repurchases by the US Treasury to increased pressure exerted by the level of government debt. The US Treasury will conduct more open market purchases of long-term notes and bonds prior to their retirement. According to Pandl, the repurchases have the potential to lower the risk-adjusted supply of Treasuries and offer some stimulus to the economy. However, Pandl noted that bond repurchases tackle symptoms rather than solve the underlying fiscal issue of the country. According to Pandl, structural budget deficits and the fast growing debt of the government are issues that should be considered.
US National Debt Exceeds $40 Trillion
On the same day, the Treasury made it clear that the national debt of the United States had exceeded the $40 trillion mark for the first time. Pandl pointed out that it came together with a stock of debt that has been increasing almost continuously from the global financial crisis onwards. Pandl explained that, at the time, higher government debt did not have any notable impact on interest rates as a result of the housing collapse.
According to Pandl, times have changed since then, as both firms and investors borrow in large amounts to fund the construction of artificial intelligence. Higher government borrowing comes along with increased private sector borrowing, resulting in greater demand for financing.
Zach Pandl Catches Bitcoin in the Debasement Trade
Pandl also made a connection between government debt and the threat of a loss in credibility of fiat currency as well as the demand for other means of storing value. According to him, growing debt could result in the gradual loss of trust in conventional currencies. Such an atmosphere could lead to the demand for assets providing monetary and financial exposures outside the norm. Pandl considered physical gold and certain cryptocurrencies as examples of such beneficiaries. In the case of cryptocurrency, he believed that the “debasement trade” would be advantageous for Bitcoin, Ethereum, and Zcash. The inclusion of these cryptocurrencies in such a reaction to government debt is explained by Pandl’s vision of their place.
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