US Banking System Faultlines And High Debts Give Lifeline To Bitcoin

Hedge fund manager and macroeconomic expert Hugh Hendry has raised concerns about the US banking system and the American economy as a whole. In a recent interview with Bloomberg Markets, Hendry warned that mass panic and capital flight from the US banking sector are justified given the decline in the M2 money supply.

According to Hendry, the M2 money supply tracks money in liquid checking accounts and a further decline in this metric could lead the US government to restrict citizens from taking their capital out of the banking system. “Sometimes it’s kind of relevant to panic. I would recommend you panic… You’ve seen the biggest waterfall decline in M2 right now. M2 is deposits, not loans. That’s the deposits fleeing the system and going into money market funds,” Hendry said.

Hendry believes that capital flight from US banks is not just due to fears about whether the FDIC will insure deposits above $250,000, and a blanket guarantee on deposits would not solve the problem. He expressed concern that the US government may consider imposing restrictions on US bank deposits as it did in 1934 when the Federal Reserve Act confiscated gold from US citizens.

Hendry suggests that amid the uncertainty, Americans should consider investing in US Treasuries and potentially Bitcoin. He called US Treasuries the “most reviled security in the universe” and believes they are a safe bet for investors. He also thinks that Bitcoin could be an asset class that could trade three to four times higher in the next five years.

Hendry’s warning comes at a time when the US economy is facing multiple challenges, including rising inflation, supply chain disruptions, and labor shortages. His comments also reflect the growing unease among investors about the potential risks to the financial system and the economy as a whole.

As the situation continues to unfold, it remains to be seen whether Hendry’s warning will prompt investors to rethink their investment strategies and consider alternative assets. However, his warning highlights the need for vigilance and caution in uncertain times.

In the latest, The Market Report episode, hosted by Cointelegraph’s insightful analyst and writer, Marcel Pechman, the question of whether Bitcoin is a safer investment than the US dollar takes center stage. As the risk of a potential U.S. government debt default looms, Pechman delves into the implications and also covers other intriguing topics, including the formidable resistance at Bitcoin’s $28,000 mark and the intricate relationship between Ethereum, Celsius, and Lido staking. The show, a weekly highlight on the Cointelegraph Markets & Research YouTube channel, provides invaluable insights for cryptocurrency enthusiasts.

The episode kicks off by discussing a notable Bloomberg Markets survey that positions Bitcoin as one of the top three assets in the event of a U.S. debt default. Pechman points out the unsurprising preference for Bitcoin over fiat currencies, especially considering that central banks in major economies such as Japan, Canada, eurozone, England, and Switzerland have increased their borrowing agendas from the U.S. Federal Reserve in (March) 2023. The increased correlation to mandate currencies puts these traditional assets at considerable risk in the face of a potential U.S. debt default, further bolstering Bitcoin’s appeal.

While Pechman acknowledges that gold would likely witness a 10-fold higher allocation than Bitcoin due to the cryptocurrency’s market capitalization and volatility, he highlights a positive trend among retail investors. According to his analysis, 11% retail investors would consider adding Bitcoin to their portfolios in the event of a government shutdown, whereas 46% would opt for gold. Pechman tantalizes viewers with the question of whether Bitcoin could potentially surpass the $100,000 mark should such a scenario unfold, leaving them eager to tune in to find out his perspective.

Transitioning to the next segment, Pechman delves into the resistance level that Bitcoin faces at $28,000, shedding light on why it may prove to be a tougher hurdle than initially anticipated. While the recent correction to $25,800 was potentially influenced by high transaction costs, Pechman claims that it showcased the network functioning as intended, using high fees as a defence mechanism against spam attacks.

However, the real obstacle hindering a swift recovery beyond $28,000 lies in the positioning of professional traders who have taken neutral-to-bearish stances ahead of this critical level. (IPA Service)