USA debt downgrade bodes well for BTC

Yesterday, Fitch Ratings dropped a bomb on Wall Street by announcing that it had downgraded America's long-term foreign currency rating from a picture-perfect AAA to the next level down, AA+.

This marks the country’s second downgrade ever, following Standard & Poor’s downgrade from AAA to AA+ back in 2011.

Sparking a bit of controversy, Fitch cited the country’s deteriorating fiscal position, and the frequently chaotic political landscape as the reasoning behinds its bold decision.

The ratings firm also pointed out that the US debt-to-GDP ratio will likely hit ~120% within the next 3 years as interest payments command more of the budget.

The Debt-to-GDP Backdrop

For those keeping track, the U.S. debt-to-GDP ratio had already surpassed the 120% mark in 2021 – the first time since the Second World War.

Essentially, this means the national debt was 20-25% greater than the entirety of the U.S. economy at the time. Yikes.

Since then, the debt-to-GDP ratio has scaled back slightly. However, at 112.9% this year, it is still significantly above the pre-pandemic levels of 100.1% back in 2019.

Nevertheless, Fitch points out that the present debt ratios are more than double the median of 39.3% of GDP for 'AAA' rated countries and 44.7% for 'AA' rated ones.

To put it simply, the amount of debt the U.S. is facing is quite alarming. According to Fitch, this significantly heightens the risk for the U.S.'s fiscal stability in case of any future economic shocks.

This Is Why We Crypto

While the Fitch drop temporarily riles those on Wall Street and people like Janet Yellen, it does bode well for us folks betting on crypto.

For starters, a further drop in confidence in the U.S. might encourage more individuals to turn to digital assets. In other words, a dent in the credit reputation of the central government should increase the allure for a decentralized, borderless currency.

More US debt + US being a less dependable payor of its debts = more crypto adoption

But here’s an interesting kicker…

In the past we’ve seen that negative trends in stocks could bring down Bitcoin as well. However, this time around, when Fitch unexpectedly dropped the news, Bitcoin didn’t go tumbling. Instead, it's showing some spunk and holding its own.

For context, stock futures fell in after-hours trading on Tuesday, reflecting renewed investor jitters. Today’s stock market opening wasn’t too cheery either. However, the announcement from Fitch seemed to trigger an impulsive pull into Bitcoin. In fact, at the time of writing, Bitcoin is the only player wearing green today.

While this is just a small example of Bitcoin’s strengthening resilience, it does illustrate a potential break from the historical tendency for cryptos and equities to sink together.