The U.S. federal government's outstanding borrowing has now reached a staggering $35 trillion.

In the past and among other nations, rising national debt has led to increased inflationary pressures and eroded confidence in traditional fiat currencies. 

Yet unlike other times in history, sovereign nations and investors alike have an opportunity to buy crypto as a hedge against those pressures, Rich Rosenblum, co-founder of trading firm GSR, told Decrypt.

“The fact that much of the world has ballooning debt and is arguably in a ‘debt trap’ is the part that’s really good for Bitcoin,” Rosenblum said.

In such environments, investors often seek out alternative stores of value, such as gold. Bitcoin, often dubbed "digital gold," has been seen by some as a hedge against inflation and currency devaluation due to its decentralized nature and limited supply. 

While rising national debt is eye-catching, it doesn’t provide the full picture, Rosenblum added.

Instead, Rosenblum pointed to debt to gross domestic product output, the overall level of interest rates, inflation, and consumer expectations surrounding it.

Driven predominantly by increased consumer spending, inventory investment, and business investment, U.S. real GDP 1n Q2 2024 grew at an annual rate of 2.8%, up from 1.4% in Q1, Department of Commerce figures show. 

Real GDP adjusts for inflation and measures the value of goods and services at constant prices, with 2.8% growth considered relatively healthy for developed economies like the U.S.

While an expansion from the previous quarter showed a modest increase in economic growth, total public debt as a percentage of GDP remains elevated. 

After reaching its highest level in Q2 2020 at a ratio of 132%, debt-to-GDP has since fallen back slightly to 122%, according to data from the St. Louis Federal Reserve.

Even as U.S. economic activity outpaces the growth in national debt, a high debt level poses challenges for fiscal policy and economic stability ahead of an upcoming U.S. presidential election in November. 

That's because high levels of debt typically limit the government's fiscal flexibility, potentially increasing borrowing costs and reducing its ability to respond to economic downturns or emergencies, should such an event occur.

As national debt soars, the purchasing power of the U.S. dollar can diminish.

High levels of national debt can lead to inflation if the government resorts to printing more money to service its debt, Decrypt was told. Increased money supply without a corresponding increase in goods and services can lead to higher prices, reducing the purchasing power of the dollar.

In any case, a ballooning national debt could drive further Bitcoin adoption as people and institutions re-think what is traditionally “risk-free” and re-evaluate their risk budget, Jeff Yew, CEO of crypto asset manager Monochrome, told Decrypt.

“When traditional risk-free assets like fixed income are backed by a currency engineered to depreciate at an unprecedented pace, investors are reconsidering their risk-free status and look towards alternatives like Bitcoin, which offers a strategic asymmetric return profile in a diversified portfolio,” Yew said.