US Primary Fiscal Deficit Hits 3.59% of GDP, Strengthening Case for Bitcoin and Gold

The investment case for scarce assets such as Bitcoin and gold is gaining traction after the US posted the largest primary fiscal deficit among major advanced economies, CoinDesk reported.

As of August 31, the US primary fiscal deficit stood at 3.59% of gross domestic product, the highest among major developed economies, including Japan, according to CoinDesk. The primary balance measures the gap between government spending and revenue, excluding interest payments on existing debt, and is a gauge of the underlying state of public finances.

A large fiscal deficit could raise the risk premium on US Treasuries and increase the likelihood that capital shifts to countries with relatively stronger fiscal positions or into alternative assets, the report said.

Higher Treasury yields typically weigh on Bitcoin and gold because neither asset pays interest. But when yields rise because of concerns over government debt rather than strong economic growth, demand can instead flow into havens such as Bitcoin and gold.

Bitcoin has climbed about 23% this month, while gold has gained about 10% over the same period. CoinDesk said the recent moves coincided with growing demand for scarce assets amid concerns about fiscal soundness.

The derivatives market is also reflecting bullish expectations. On Deribit, open interest in Bitcoin options is concentrated in call options with strike prices between $80,000 and $100,000, amounting to billions of dollars. CoinDesk added that this week's US nonfarm payrolls report and any resulting shift in expectations for a September rate hike could heighten short-term volatility.