Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

Bitcoin Ranks High as a Safe-Haven Asset as Household Debt Climbs to $17 Trillion

By Frank HolmesCryptocurrencyMay 23, 2023 03:34
ph.investing.com/analysis/bitcoin-ranks-high-as-a-safehaven-asset-as-household-debt-climbs-to-17-trillion-170244
Bitcoin Ranks High as a Safe-Haven Asset as Household Debt Climbs to $17 Trillion
By Frank Holmes   |  May 23, 2023 03:34
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
BTC/USD
+1.30%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/JPY
+0.02%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/CHF
+0.02%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XAU/USD
+0.48%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US500
+0.52%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
V
-1.13%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Once a year, Miami becomes a global Mecca for Bitcoin enthusiasts and advocates when the city hosts the titular conference celebrating the largest digital asset by market value. With a $525 billion market cap, Bitcoin is currently the world’s 12th biggest asset, just behind Tesla (NASDAQ:TSLA) ($550 billion) and ahead of Visa (NYSE:V) ($485 billion). As I told the audience during my keynote speech, it’s remarkable that Bitcoin has managed to do this, as it has no CEO, no marketing budget and no board of directors.

Although attendance was down this year compared to last—mostly because Bitcoin’s price is still off its record high of approximately $69,000, set in November 2021—there was nevertheless an impressive turnout of investors of all ages, industry leaders, policymakers and more.

It should tell you something about Bitcoin’s rise to mainstream prominence that this year’s conference boasts not one but two presidential candidates among its speakers (Robert Kennedy Jr. and Vivek Ramaswamy), a former presidential candidate (Tulsi Gabbard), a sitting U.S. senator (Cynthia Lummis of Wyoming) and a sitting U.S. representative (Patrick McHenry of North Carolina). Both Kennedy and Ramaswamy made history by announcing that their campaigns would accept donations in the form of Bitcoin.

As you might expect, two of the most urgent topics of conversation at Bitcoin 2023 were the U.S. banking crisis and the looming debt ceiling crisis. In both cases, Bitcoin has been held up as an asset that, like gold, could potentially help individuals and households shield their wealth in the event of a financial or economic meltdown.

But these are Bitcoin evangelists, so of course they would take this position, right? What about more general investors? 

Here, too, Bitcoin comes away with very high marks. Bloomberg recently asked close to 640 investors which assets they would prefer if the U.S. hit the debt ceiling and defaulted on its obligations. Bitcoin was the number three asset on the list, with 7.8% of institutional investors and 11.3% of retail investors naming the digital currency. This was enough to put it ahead of traditional safe-haven currencies such as the dollar, Japanese yen and Swiss franc

Preference for Safe-Haven Assets
Preference for Safe-Haven Assets

Gold Has Had a Much Lower Correlation with the Market Than Bitcoin

Perhaps unsurprisingly, gold topped Bloomberg’s survey list, with over half of institutional investors and nearly half of retail investors favoring the yellow metal in the possible event of a U.S. default. I’ve written many times about the similarities between gold and its digital cousin Bitcoin, the most important one being that they’re decentralized. Unlike fiat currencies, gold and Bitcoin have finite supplies that can’t be tinkered with by a central banker or finance minister, making them attractive diversifiers. 

A huge premium that gold has over Bitcoin, as I see it, is its very low correlation with the market. For the five-year period through May 2023, gold and the S&P 500 shared a correlation coefficient of 0.04, meaning the two were almost completely agnostic as to what the other one was doing.

Bitcoin, on the other hand, has traded very much like stocks and other risk-on assets. Over the same period, the digital currency and the market had a very strong positive correlation of 0.88, meaning it often moved in the same direction.

The Mountain of Debt Continues to Grow With U.S. Households Now Owing $17 Trillion

I believe one of the greatest investment cases for Bitcoin and gold right now is the news that debt continues to expand at both the government and household levels. According to the Federal Reserve Bank of New York, the amount of debt owed by U.S. households topped $17 trillion for the first time in the first quarter. 

U.S. Household Debt
U.S. Household Debt

In the chart above, I added the federal funds rate—now in the 5.00% to 5.25% range—to show that higher lending rates have so far had very little effect on Americans’ borrowing habits. Since March 2022, when the Fed tightened for the first time, consumers have added over $860 billion to the total mortgage balance, $145 billion in credit card debt, $93 billion in auto loans and $14 billion in student loans.

Credit card debt was the only measured component that didn’t move much between the end of 2022 and the end of March 2023, but at nearly $1 trillion, it stands at its highest point ever. 

Carrying a balance on your credit card is now also the most expensive it’s ever been, with the average interest rate standing at a whopping 20.9% in February. 

Average Credit Card Interest Rates
Average Credit Card Interest Rates

In short, this is an alarming amount of debt with high interest rates attached to it, at an uncertain time when many people are worrying about a potential recession in the coming months. As I see it, this makes gold and Bitcoin look very attractive as diversifying assets.

***

Disclosure: Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2023): Tesla Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Bitcoin Ranks High as a Safe-Haven Asset as Household Debt Climbs to $17 Trillion
 

Related Articles

Bitcoin Ranks High as a Safe-Haven Asset as Household Debt Climbs to $17 Trillion

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email