The Global Debt Bubble Exceeds $240 Trillion; If It Pops, How Will the Bitcoin (BTC) Market React?

September 13, 2019 / by Zachary Mashiach

As of April, the global debt bubble had reached $243 trillion, which is apparently three times the global GDP. This is in addition to $750 trillion of derivatives, and adding this to the debt total means there is around $1 quadrillion of financial obligations globally.

To imagine this number, if you stacked a quadrillion dollar bills, it would be 67,866,160 miles high, enough to stretch to the Moon and back 140 times! 

The question we’re looking at here is what will happen to the Bitcoin (BTC) market if all of these debts and derivatives begin to default?

The 2008 Great Recession is an example of what happens when massive debt bubbles pop. Essentially, the banks were providing mortgages to anyone who wanted them, and then these risky mortgages were grouped into sub-prime mortgage securities.

As these securities began to default. it caused a chain reaction leading to the collapse of numerous banks and corporations that were holding the securities. This lead to even more defaults and so on.

The Great Recession was only halted by the Fed printing trillions of dollars, leading to fiat inflation, but not enough inflation to collapse major global fiat currencies. This event coincided with the launch of Bitcoin (BTC) since Satoshi Nakamoto wanted to create a decentralized currency that could not be printed at will. 

It seems the current global debt bubble is actually a continuation of the Great Recession. The money printing that was used to bail out the economy never stopped, and currently, banks and corporations can obtain essentially free money because of suppressed interest rates. 

Michael Krieger from Liberty Blitzkreig describes the situation succinctly:

While we’re on the topic of bubbles, it seems the truly gigantic bubble in the world isn’t Bitcoin, but rather the global debt market. This leviathan now stands at around $233 trillion, or 318 percent of global GDP. Even more troubling, an estimated $11 trillion of government debt now trades at negative yields. This means whoever is buying this paper is doing so despite the fact they are guaranteed to lose money on the “investment.” Much of this buying has been propelled by central banks that can print their own currency and buy debt indiscriminately. This is not characteristic of a healthy financial system (particularly so many years into a global recovery), but rather a zombie one that’s been artificially propped up since the financial crisis.”

As Krieger says, negative-yielding debt is soaring, meaning someone can borrow money and pay back less than they borrowed. Further, junk bond rates are approaching zero despite their risk. This situation may represent one last grasp for cash before the bubble pops. 

In the situation that debts begin to default en masse, it would look quite similar to the Great Recession at first, with banks and corporations going bankrupt, leading to a debt default chain reaction. Except this time, central banks would have little to no room to drop interest rates to stimulate the economy, and money printing would likely be the only alternative to stop the crash. 

If the global debt bubble pops, and central banks decide to print money to bail out corporations and banks that are “too big to fail,” it could lead to fiat inflation and, in the worst case scenario, fiat hyperinflation. 

If that happens, Bitcoin (BTC) would be in a prime position to rally.

Bitcoin (BTC) is decentralized and has a fixed supply that will eventually reach 21 million coins, so Bitcoin (BTC) would be one of the only currencies in the world not being printed. If fiat inflation happens Bitcoin’s (BTC) price would automatically rise, since Bitcoin (BTC) is pegged relative to fiat. Further, Bitcoin (BTC) would be a safe haven for people to protect themselves against rapidly devaluating currency. This could cause a rally all by itself since the price of Bitcoin (BTC) would rise as people seek shelter in it, making Bitcoin (BTC) one of the only profitable investment options in the world, causing even more people to buy Bitcoin (BTC).

Conversely, it is also possible that if the global debt bubble pops and the economy collapses that Bitcoin (BTC) will initially crash too, since people will have to cash out of their Bitcoin (BTC) investments in order to pay for food and rent after losing big on their stock investments or losing their jobs. 

The scenarios described in this article involve plenty of ifs, and this is all merely speculation, but it is certainly something to think about considering the historically bad debt situation worldwide.