Bitcoin Surges as Fears Swirl the U.S. Could Collapse Into "Bankruptcy" Due to Its $35.7 Trillion Debt Spiraling Out of Control

The bitcoin price has soared back toward its all-time high of just over $70,000 per bitcoin, boosted by former U.S. president Donald Trump's crypto bombshell.

Bitcoin has surged this year, pushing cryptocurrency back into the limelight as fears swirl the U.S. could collapse into “bankruptcy” due to its $35.7 trillion debt spiraling out of control.

The bitcoin price has soared back toward its all-time high of just over $70,000 per bitcoin, boosted by former U.S. president Donald Trump's crypto bombshell.

Now, as Wall Street giant JPMorgan issues a huge bitcoin price prediction, the Federal Reserve and the European Central Bank (EBC) have each published papers “attacking” bitcoin—branded a “declaration of war.”

Federal Reserve chair Jerome Powell has helped the bitcoin price boom this year with plans for drastic interest rate cuts.

The Federal Reserve Bank of Minneapolis has published a paper this week arguing bitcoin and similar assets could be taxed or banned to help governments maintain deficits.

“A legal prohibition against bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on bitcoin,” the paper's authors wrote, adding bitcoin creates a “balanced budget trap” that highlights spending shortfalls.

The Fed has “joined the European Central Bank in its attack on bitcoin,” said VanEck's head of digital asset research Matthew Sigel, writing in an X thread that the paper “fantasizes about 'legal prohibition' and extra taxes on bitcoin to ensure government debt remains the 'only risk-free security.'”

The bitcoin price has surged along with the price of gold this year as investors bet higher interest rates combined with a huge increase in deficits will create a feedback loop, forcing governments to print more money.

U.S. national debt has skyrocketed in recent years, crossing the $34 trillion mark at the beginning of 2024, largely due to Covid and lockdown stimulus measures that sent inflation spiraling out of control and forced the Federal Reserve to hike interest rates at a historical clip.

Earlier this year, Bank of America analysts warned the U.S. debt load is about to ramp up to add $1 trillion every 100 days—potentially fueling a bitcoin price surge—and could reach $36 trillion by the end of 2024.

The Fed's paper follows a report from the ECB that argues “the existence of bitcoin impoverishes both non-holders and latecomers,” describing it as a “zero-sum game” in which bitcoin buyers “increase their real wealth and consumption” at the expense of others.

“The ECB claims that early bitcoin adopters steal economic value from latecomers,” bitcoin analyst Tuur Demeester posted to X, calling the paper “a true declaration of war” and adding he “strongly believes authorities will use this luddite argument to enact harsh taxes or bans.”

The bitcoin price has surged higher this year, climbing amid a perfect storm of Federal Reserve interest rate cuts, BlackRock-led Wall Street adoption and Donald Trump's embrace of bitcoin and crypto.

The ECB paper warns that continued bitcoin price appreciation could divide society and calls for government action that would “prevent bitcoin prices from rising or to see bitcoin disappear altogether.”

“Non-holders should recognize that bitcoin’s rise is fueled by wealth redistribution at their expense,” ECB senior management adviser and report author Jürgen Schaaf posted to X. “There are compelling reasons to advocate for policies that curb bitcoin's growth or even eliminate it.”

Earlier this month, Italy's government said it was considering raising the capital gains tax on bitcoin to 42% from 26% while just this week in Denmark politicians proposed taxing unrealized bitcoin and crypto gains.