On this week’s episode of macro marketsMarcel Bichmann, analyst and writer on Cointelegraph, explores the downgrade of US debt by Fitch Ratings. According to Bechman, this change indicates waning confidence in the US government’s ability to handle its fiscal responsibilities.
The downgrade prompted investors to take a cautious stance, prompting many to take their money out of assets such as stocks, silver, oil and long-term bonds. Instead, they have turned to cash and short-term instruments, which are seen as safer options in turbulent times.
Interestingly, the cost of insuring US sovereign debt against default – as evidenced by default swaps – has remained largely stable after the downgrade. According to Bechman, the likely reason is that US Treasurys are considered one of the safest investments globally because they are backed by the US government.
As a result, Bitcoin (BTC) is under pressure from the US government’s debt rating downgrade. The initial journey to liquidity often ignores the benefits of decentralized assets during early market turmoil.
Pechman believes that these models cannot account for what happens to liquidity, or more specifically, the depth of the order book. For example, what are the consequences if the US government withholds the proceeds of its debt held by China?
Beckmann also discusses the latest EU Bank stress test showing that three institutions are “falling short”. The European Banking Authority said the test included 70 banks, representing about 75% of banking assets in the European Union.
Pechman explains that everyone knows how risky Credit Suisse and Silicon Valley are, but no one expected investor confidence in those institutions to erode so quickly. Thus, it appears to be a matter of appearance, regardless of liquidity conditions.
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