Bitcoin has experienced a decline from its recent surge, retreating from an all-time high of $124,000 per bitcoin due to an unexpected crisis at the Federal Reserve. The bitcoin price has surged nearly twofold compared to the same period last year, with expectations of daily buying pressure ranging from $20 million to $28 million. This influx is leading some to speculate about the emergence of a new class of wealth akin to the “Rockefellers or Rothschilds.”
In a striking turn of events, a notable celebrity has entered the cryptocurrency scene, prompting the former chief technology officer at Coinbase to assert that bitcoin will “end the Fed.” Balaji Srinivasan says “When bitcoin wins, it ends the Fed,” , the author of The Network State who left Coinbase in 2019, during a speech at Bitcoin Asia. “And what does that imply?” “When bitcoin wins, the Fed loses control.” Srinivasan, known for his bold yet inaccurate $1 million bitcoin price prediction in 2023, stated that bitcoin’s capped supply of 21 million will lead to the replacement of the Fed’s “gyrating rates” with “algorithmic” monetary policy as government debt continues to rise. “This is only going to get worse as inflation picks up,” Srinivasan stated, addressing the U.S. debt, which has surged to $37 trillion this year due to excessive spending during the Covid era. There are concerns that this situation could lead to a debt “doom loop,” as rising interest rates compel the government to print more money to manage the debt.
Hedge fund billionaire Ray Dalio, the founder of Bridgewater Associates, has issued a stark warning regarding the escalating U.S. debt, stating it is “likely cause a debt-induced heart attack in the relatively near future—I’d say three years, give or take a year or two.” Dalio, addressing inquiries on X after asserting that its coverage misrepresented his stance, highlighted the staggering $1 trillion annual interest on the $37 trillion debt and the $9 trillion required to refinance the debt, emphasizing that this situation is “squeezing out other spending.” “The more that happens, the closer the country is to a debt-induced economic heart attack.” Dalio stated, “the Federal government will spend about $7 trillion and take in only about $5 trillion, so it will have to sell an additional roughly $2 trillion in debt,” alongside the $1 trillion it must sell to cover interest and the $9 trillion required to roll over the debt.
The Federal Reserve is facing criticism from U.S. president Donald Trump’s White House as Fed chair Jerome Powell stands firm on not lowering interest rates. This month, the Fed is anticipated to resume its interest rate cutting cycle, which could lead to inflation “running hot” following a resurgence in prices over the summer. “This would lead bonds and the dollar to go down in value and, if not rectified, would lead to them being an ineffective storehold of wealth and the breaking down of the monetary order as we know it,” Dalio stated.
Dalio has forecasted that the bitcoin price, along with other cryptocurrencies, is poised to benefit from the Federal Reserve’s diminishing strength of the U.S. dollar. “Crypto is now an alternative currency that has its supply limited, so, all things being equal, if the supply of dollar money rises and/or the demand for it falls, that would likely make crypto an attractive alternative currency,” Dalio wrote. “I think that most fiat currencies, especially those with large debts, will have problems being effective storeholds of wealth and will go down in value relative to hard currencies.” “This is what happened in the 1930 to 1940 period and the 1970 to 1980 period.”
In the midst of the impending debt crisis, bitcoin price bulls are capitalizing on the situation, forecasting that it will significantly boost bitcoin’s value. “The $200 trillion debt spiral means the U.S. can’t stop printing,” stated Max Keiser, a financial contrarian and bitcoin advocate who has provided guidance to El Salvador on its bitcoin strategy, in a post on X. Keiser forecasted, “the gap between have-nots & have-yachts (assets) will grow rapidly,” suggesting that bitcoin could soar to a price of $2 million.
This year, U.S. president Donald Trump has delivered pointed criticism towards the Fed and its chair, Jerome Powell, particularly over Powell’s steadfast refusal to acquiesce to Trump’s calls for lower interest rates. The tension between Trump and the Federal Reserve has been escalating for years, sparked by allegations of political bias that emerged when Powell mistakenly labeled post-Covid lockdown inflation as “transitory,” refraining from raising interest rates in reaction to surging prices. The tension escalated dramatically when Powell caught markets off guard with a 50 basis point inflation increase in September of the previous year, interpreted by some as a strategic advantage for Trump’s Democratic Party opponent, Kamala Harris.
Concerns over inflation persist, undermining confidence in the U.S. dollar. This month’s Federal Reserve interest rate decision is anticipated to result in a 25 basis point cut. “Bitcoin is now sitting on major on-chain support and a key technical level—but with this being one of the most pivotal weeks of the year for crypto, the stakes could not be higher,” analysts with 10x Research, led by Markus Thielen, wrote in an emailed note.
On Wednesday, the Fed’s Beige Book is set to provide valuable insights into U.S. economic fundamentals. Meanwhile, Friday’s August jobs report is anticipated to reveal an increase of 75,000, as indicated by a Reuters poll. This report will be closely monitored for its potential influence on Federal Reserve officials’ considerations leading up to their September interest rate meeting.