The possibility of an imminent collapse of the US dollar is sparking debate in financial markets. Many Bitcoiners echo this idea and even hope for it to happen, as it would in theory be beneficial for Bitcoin (BTC), but financial specialist Lyn Alden maintains that an abrupt crisis is unlikely. Instead, he proposes a scenario of progressive deterioration.

Alden notes that many extreme forecasts arise from media incentives or incomplete analysis, and that some of those predicting an imminent collapse “benefit from sensationalism," while others simply misinterpret current macroeconomic dynamics.

Several Bitcoin enthusiasts, for example, anticipate a monetary collapse as a direct consequence of the escalating public debt crisis and fiscal deficits. In fact, they see this scenario as a potential catalyst for the price of the digital asset. However, that perspective misses key structural factors, according to Alden.

One of these factors is that the United States currently has a fiscal deficit equivalent to 7% of its GDP, equivalent to just over $1.4 trillion so far. While this figure is high, it remains far from extreme levels. The problem is structural and difficult to reverse, says the analyst, but not unsustainable in the short term.

The federal government also has a debt of more than $36 trillion. While this number seems alarming, it can't be analyzed in isolation. American households hold about $180 trillion in assets and about $160 trillion in net worth after deducting liabilities, as seen in this chart: The U.S. government has more than $36 trillion in debt. Source: FRED.

Alden explains that, although this is not a direct comparison between public debt and private wealth, it serves to measure the relative magnitude of both amounts.Even more relevant is the global monetary dynamic. The US monetary base stands at nearly $6 trillion, as shown in the following chart, while total dollar-denominated debt and loans domestic and international exceed $120 trillion.

The U.S. monetary base is approaching $6 trillion. Source: FRED.

Of that total, approximately 18 trillion corresponds to external debt, that is, contractual commitments outside the U.S. This implies that many economic agents around the world need dollars. And it is this structural and inflexible demand that limits the risk of an abrupt depreciation of the greenback, the analyst believes.

Unlike countries like Venezuela, Argentina, or Turkey, whose currencies lack international demand, the dollar operates within a global financial network where multiple agents who do not owe each other are obligated to make payments in dollars.

This creates a constant pressure to acquire dollars that doesn't disappear even if the money supply increases. Therefore, Alden argues, even if the monetary base doubles or triples, this doesn't automatically lead to hyperinflation. The amount of contractual demand absorbs a good portion of the increase.

It is not a harmless situation

However, this doesn't mean the situation is harmless. US fiscal policy is already affecting the Federal Reserve's ability to control credit growth, the specialist says. According to Alden, the system operates in a state of "fiscal dominance,” where the need to keep the Treasury market liquid and functioning limits monetary autonomy. That is, the Fed may be forced to intervene to prevent disruptions, even at the cost of tolerating inflation.

Events like the UK bond crisis in 2022 illustrate what could happen. In times of stress, the central bank can intervene with measures such as quantitative easing. This tends to stabilize the system in the short term, but it has inflationary costs because it involves more money printing, which can distort asset prices. In any case, it does not, on its own, cause a full-blown dollar crisis.

In that vein, according to Alden, future developments are more like a train in slow motion than a sudden explosion. Current deficits are difficult to reverse, and the combination of rising debt, monetary intervention, and external demand for the dollar paints a picture where risks increase over time. There is no clear breaking point. The situation is gradually worsening.

Alden argues that it's more useful to think of fiscal dynamics as a dial that keeps turning, not a switch. The problem is already present, but it could linger for years without leading to an immediate collapse.

“The deficits are more intractable than the bulls think, which means it's highly unlikely the US federal government will get them under control anytime soon. But on the other hand, it's not as imminent as the bears think; it's unlikely to trigger a full-blown dollar crisis anytime soon. It's a very long, slow-motion train wreck. A dial that's slowly being turned higher and higher.”

Lyn Alden, financial analyst.

Recent history shows that other countries have endured high levels of monetary debasement without reaching total collapse. Egypt, for example, increased its money supply more than sixfold in a decade, as seen in the following graph, leading to a significant depreciation of its currency, but not a systemic shutdown.

Egypt's monetary base has been steadily increasing. Source: CEIC Data.

In other economies, such as China, Brazil, and India, money supply growth has also been greater than in the US. China reached 145% in the last decade; Brazil, 131%; India, 183%. But none of these currencies has completely collapsed. According to Alden, this demonstrates that devaluation can be extensive and sustained without leading to outright collapse.

The dollar faces structural challenges stemming from debt and deficits. However, its status as a global reserve currency and the resilient demand it generates protect it from a sudden crisis. The risks surrounding that currency accumulate slowly and could take decades to be felt, according to Alden's estimate. The interesting thing is that, in the meantime, Bitcoin is gaining ground and emerging as a true reserve asset, taking that place from the dollar, which, albeit slowly, is steadily devaluing.