While Bitcoin (BTC ($105,431.36)) has been exhibiting quite volatile movements in recent days, analysts suggest that Bitcoin could be an attractive hedge against possible defaults in the face of increasing global debt risks and record-high financial debt-GDP levels.
At this point, Bitwise analysts claimed in a recent report that Bitcoin is an insurance for portfolios of major global economies against the rapid increase in their debt.
Bitwise analysts have claimed that Bitcoin could surge above $200,000, amid a climate where it is seen as “insurance” against rising debts and default risk.
“Sovereign default risks are rising globally as financial debt/GDP levels reach new record highs.
The financial situations of France and the UK are becoming particularly worrisome for bond investors.
We also think the U.S. will reach its $36 trillion debt limit and the government’s ability to meet its fiscal obligations will decline.
Historically, such moments of uncertainty have had mixed effects on Bitcoin’s price, but we expect demand for BTC to increase in the face of heightened concerns.”
Noting that Bitcoin’s fair value is correlated with countries’ default probabilities, analysts noted that if G20 sovereign bonds (worth $69.1 trillion) face a weighted default probability of 6.2%, Bitcoin’s theoretical fair value could be $219,000.
Analysts said gold also provides a good hedge against sovereign risks, but less so than Bitcoin due to gold’s lower scarcity and also its reliance on traditional centralized depository institutions such as banks.
Analysts said Bitcoin also has risks in the face of its insurance role, including its volatility being prone to sharp price drops in times of uncertainty, posing a risk to investors seeking stability in times of crisis.
*This is not investment advice.
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