$35 Trillion Question: Can Bitcoin Hedge Against U.S. Debt? BlackRock Thinks So

TLDR:

BlackRock warns of growing concerns over $35 trillion U.S. debt
Federal Reserve cuts interest rates by 50 basis points
Bitcoin price surges to over $62,000
BlackRock describes bitcoin as a “unique diversifier” against economic risk
BlackRock’s iShares Bitcoin Trust becomes world’s largest bitcoin ETF

The world’s largest asset manager, BlackRock, has highlighted bitcoin’s potential as a hedge against economic uncertainty, as the U.S. national debt reaches $35 trillion.

This comes as the Federal Reserve announced its first post-pandemic interest rate cut of 50 basis points, causing the bitcoin price to surge above $62,000.

In a recent paper, BlackRock’s exchange-traded fund (ETF) chief investment officer, head of crypto, and head of fixed income global macro outlined the investment case for bitcoin.

BlackRock just put out a nine-page white paper that makes case for bitcoin ETF as a “unique diversifier” that can hedge against fiscal, monetary and geopolitical risks, also incl section called “Bitcoin’s path to $1 trillion market cap” 👀 Read whole thing here:… pic.twitter.com/mRzDpw4aSP

— Eric Balchunas (@EricBalchunas) September 18, 2024

They noted that growing concerns about U.S. federal deficits and debt have increased interest in alternative reserve assets. The paper described bitcoin as a “unique diversifier” to hedge against economic and political risk.

The U.S. national debt, currently at $35 trillion, is growing at a rate of $1 trillion every 100 days. Bloomberg Intelligence ETF analyst Eric Balchunas commented on this situation, stating that there is “no end in sight” to the debt accumulation.

BlackRock’s paper also mentioned that this trend is not limited to the United States, observing similar dynamics in other countries with significant debt accumulation.

The authors suggested that this explains a substantial portion of the recent broadening institutional interest in bitcoin.

The asset manager’s stance on bitcoin has evolved over time. BlackRock CEO Larry Fink, who previously dismissed bitcoin as “an index of money laundering,” admitted in July that he had been “wrong” about the cryptocurrency.

Fink now acknowledges bitcoin as “digital gold” and a “legitimate” financial instrument.

BlackRock’s successful launch of a U.S. spot bitcoin exchange-traded fund (ETF) last year has been a major factor in driving up the bitcoin price in 2024. The iShares Bitcoin Trust (IBIT) recently overtook the Grayscale Bitcoin Trust (GBTC) as the world’s largest bitcoin exchange-traded investment fund, with inflows topping $21 billion.

The Federal Reserve’s recent interest rate cut is expected by many bitcoin and crypto observers to signal the beginning of a new bitcoin bull run. Samir Kerbage, chief investment officer at bitcoin and crypto investment company Hashdex, commented that while other macro factors are impacting the outlook for bitcoin and other risk assets, these markets should benefit from the Fed’s dovish shift.

Kerbage added that regardless of the near-term direction of monetary policy, bitcoin remains well-positioned for growth as institutional adoption continues to gain momentum.

The bitcoin price rally following the Fed’s rate cut has pushed the cryptocurrency’s value to over $63,000. This surge comes as traders turn their attention to potential economic developments in China and the implications of the Fed’s monetary policy shift.