Bitcoin Could Jump Almost 70% If US Defaults: Standard Chartered

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Bitcoin. Photo by Getty Images Bitcoin could climb $20,000 in the event of a US default, said Geoff Kendrick of Standard Chartered. Not all cryptos would act the same, with some behaving more like stocks, he told Insider. “So in fact, the optimal trade would probably be long in bitcoin, short in ethereum.”

With the looming debt ceiling crisis showing no signs of resolution, bond and equity markets became jittery.

But while some investors fear a historic default, one asset could potentially rise in such a situation: Bitcoin.

Describing a US default as a “low probability, high impact event”, Geoff Kendrick, head of FX research at Standard Chartered, said it could send bitcoin up around $20,000, an increase of 68 % from current levels.

He told Insider that’s because the top cryptocurrency by market capitalization has a reputation for performing well in times of stress and is often seen as a safe haven, especially since it’s a decentralized asset.

But Kendrick doesn’t think bitcoin would rally in a straight line in the event of a US default, saying “it’s probably going down a bit on the first day or the second day or the week.” In this case, bitcoin could initially drop $5,000 and then jump $25,000, he estimated.

And not all cryptocurrencies would follow Bitcoin’s behavior, he added, with others like Ethereum trading more like stocks, which would likely fall in the event of a default.

“So actually the optimal trade would probably be long bitcoin, short ethereum. That kind of mix would probably be a good expression of that,” Kendrick said.

If Congress fails to lift the $31.4 trillion federal debt ceiling, a default could occur over the summer, an event that could cause seismic disruptions in global markets. On Tuesday, Treasury Secretary Janet Yellen warned that a default would be catastrophic for the US economy, causing mass unemployment, defaults and higher rates “in perpetuity”.

With House Republicans and the White House still a long way from an agreement to raise the debt ceiling, yields on three-month Treasuries recently hit a 22-year high as they would mature around of a potential default date.

Meanwhile, bitcoin is still recovering from a selloff that began in late 2021 and continued through much of 2022 as the Federal Reserve embarked on an aggressive tightening cycle.

But bitcoin has risen almost 80% so far in 2023 and recently neared $30,000 as woes at First Republic Bank reignited fears over the financial sector.

For his part, Kendrick is already bullish on bitcoin, saying in a note on Monday that it could hit $100,000 by the end of 2024 due to banking turmoil, the bitcoin halving and the expected end of Fed rate hikes, among other things, although he didn’t mention the risk of a US default.

“Although sources of uncertainty remain, we believe the path towards the USD 100,000 level is becoming clearer,” he wrote.

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