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"Lightning Red Alert"—$33 trillion in US S An abrupt "debt death spiral" could start a "vicious circle" in the price of bitcoin


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    10/02 update below. This post was originally published on October 1

    Bitcoin BTC and cryptocurrencies have struggled this year as the Federal Reserve piles pressure on markets—with some warning the pain could just be getting started.

    Subscribe now to Forbes' CryptoAsset & Blockchain Advisor and successfully navigate the bitcoin and crypto market rollercoaster ahead of next year's historical bitcoin halving!

    The bitcoin price has collapsed from its peak of almost $70,000 per bitcoin in late 2021, although one of the world's biggest technology companies could be plotting a surprise entrance to the world of bitcoin and crypto.

    Now, as the U.S. debt pile soars to a face-melting $33 trillion, fears are growing the U.S. has entered a "debt death spiral," creating a vicious circle that the Federal Reserve may not be able to escape—but boosts the bitcoin price.

    Bitcoin's historical halving that's expected to cause crypto price chaos is just around the corner! Sign up now for the free CryptoCodexA daily newsletter for traders, investors and the crypto-curious that will keep you ahead of the market

    MORE FROM FORBES'Alarm Bells For Crypto'-Leak Reveals Joe Biden Could Be About To Issue a Game-Changing Executive Order And Trigger Bitcoin Price ChaosBy Billy Bambrough

    Traders are nervously eyeing the spiraling U.S. debt pile that some think could trigger a "vicious ... [+] circle" that ultimately boosts the bitcoin price.

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    "The deficit doubling to $2 trillion in the last year should be a flashing red warning sign to everyone who cares about America's future," bitcoin-backing U.S. senator Cynthia Lummis posted to X (Twitter).

    "Our nation is quickly approaching a debt death spiral that will bury future generations. We need to end Washington's spending addiction."

    Earlier this month, U.S. national debt—the amount of money borrowed by the federal government to cover operating expenses—topped $33 trillion for the first time, the U.S. department of the Treasury said. Spending has been turbo-charged by the Covid crisis and lockdowns in recent years.

    Meanwhile, the Federal Reserve has embarked on a frantic series of interest rate hikes as it wrestles to get run-away inflation under control, hiking rates at their fastest-ever clip to levels not seen since before the 2008 global financial crisis.

    As a result, the federal government is paying more just for the interest on the national debt with projections showing those interest costs tripling from just under $400 billion last year to almost $1.2 trillion in 2032, forcing borrowing higher again to cover the higher interest expenses.

    "Raising rates won’t stop inflation, it'll stoke higher inflation," bitcoin advocate Max Keiser posted to X. "The vicious circle is unrelenting. We have entered a death debt spiral," he said, adding he expects "everything to go to zero against bitcoin."

    10/02 update: The bitcoin price has rocketed higher as traders cheer a deal to avert a U.S. government shutdown, driving the wider ethereum price and crypto market higher.

    "Crypto has a spring in its step at the start of this month, which has already been given the moniker 'Uptober,'" Susannah Streeter, head of money and markets at the brokerage Hargreaves Lansdown, said in emailed comments and pointing to news Coinbase has been granted a payments licence in Singapore as boosting "sentiment."

    "Speculation is swirling that, given past performance, there could be a positive few weeks ahead for coins and tokens. Bitcoin and ethereum have surged by just under 5% in less than 24 hours as the upbeat vibes surrounding the currencies have taken hold. Investors should be wary of trying to catch a ride on crypto solely on these moments of momentum, particularly given the highly volatile journey that crypto has been on. Although it seems clear that cryptocurrencies are here to stay, and there is increasing appetite to add them to portfolios, the waiting game is still on for more regulated options for investors."

    This week, Jamie Dimon, the chief executive of Wall Street giant JPMorgan, has warned people should prepare for a "worst-case" Fed scenario.

    "I am not sure if the world is prepared for 7% [interest rates]," Dimon told the Times of India after Fed chair Jerome Powell last week warned he was prepared to keep raising rates if necessary to stamp out inflation.

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    MORE FROM FORBESElon Musk And X Could Be About To Decide The Fate Of Bitcoin, Ethereum, XRP And Crypto Amid Wild Price SwingsBy Billy Bambrough

    The bitcoin price has failed to regain its late 2021 peak of almost $70,000 per bitcoin, though some ... [+] think a U.S. debt death spiral could trigger a bitcoin price boom.

    Forbes Digital Assets

    Earlier this month, the former chief executive of crypto exchange BitMex and legendary bitcoin trader Arthur Hayes predicted the bitcoin price could pump if the Fed keeps raising rates.

    "When rates rise, the government increases interest payments to the rich, the rich spend more on services, and GDP pumps even more," Hayes wrote, adding bondholders may seek yield in more rewarding "risk assets" like bitcoin.

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