As U.S. bankruptcies surge past pandemic levels, is crypto becoming the unexpected outlet for liquidity, or just another risk tied to credit stress?

Bankruptcies hit highest level since 2020

In July, 71 large companies in the U.S. filed for bankruptcy, the highest monthly total since July 2020, when pandemic shutdowns forced dozens of firms into default.

Year-to-date, 446 large bankruptcy filings have been recorded, already surpassing pandemic levels and marking the busiest start to a year since 2010.

The hardest hit sectors are industrials and consumer discretionary. Industrials account for 70 filings so far in 2025, followed by 61 in consumer-related businesses. Healthcare has seen 32, while energy companies, supported by high commodity prices, have reported only 4.

Several well-known consumer brands including Forever 21, Rite Aid, Joann’s, and Claire’s have returned to court after earlier restructurings failed to stabilize their operations.

The numbers are tied directly to refinancing pressures. In early 2024, corporate interest costs made up just 9.1% of net income, the lowest level since the 1950s. As debt matured and rolled into higher-rate environments, that figure climbed rapidly.

The scale of these defaults is being closely tracked by crypto markets because it speaks directly to liquidity and credit stress. When companies default, credit availability in the broader economy contracts, and investors look for assets outside the corporate and banking system.

In 2020, when bankruptcies spiked, Bitcoin’s volumes and prices climbed as capital rotated into liquid alternatives.

At the same time, corporate distress has coincided with steady inflows into spot Bitcoin ETFs, showing that institutional investors are positioning for crypto to absorb capital outflows from weakening corporate credit markets.

Inflation pressures collide with tariff-driven costs

The Federal Reserve held its benchmark rate at 4.25- 4.5% in its July meeting, the seventh pause in a row, reflecting the challenge of balancing persistent inflation with growing signs of stress in the corporate sector.

What stood out this time was the division inside the Fed itself. Two governors, Michelle Bowman and Christopher Waller, voted for an immediate rate cut.

According to Reuters, it was the first time in more than three decades that two sitting members of the Federal Open Market Committee broke from the majority in the same meeting.

The case for cutting rates comes from weakening credit conditions and persistent stress amid Trump’s tariff-induced trade wars across the globe.

With bankruptcy filings rising and refinancing costs pushing small and mid-sized firms into difficulty, policymakers are under pressure to ease borrowing costs.

The case against cutting is tied to inflation. Government data showed producer prices rising 0.9% in July, the largest monthly increase since 2022. Core CPI has also returned above 3%.

MarketWatch noted that Fed officials remain worried about tariff-related costs feeding directly into consumer prices. The current effective tariff rate is 17.3%, the highest since 1935, making the situation more complex than during past easing cycles.

Financial markets have responded cautiously. According to CME FedWatch data, traders still price an 79% chance of a September rate cut, but expectations for deeper cuts later in the year have been scaled back.

Bond yields remain elevated, and credit spreads widened in July. Equity gains are increasingly concentrated in a small set of large technology companies, while broader indices show little momentum.

Crypto markets have reacted in line with this broader adjustment. Bitcoin (BTC) retreated from its peak of about $124,000 in July to around $113,200 as of this writing on Aug. 21.

Data from Coinglass shows more than $1 billion in leveraged positions were liquidated during the drop, highlighting how sensitive trading still is to macro signals.

ETF flows shifted quickly. According to CoinShares, U.S.-listed Bitcoin ETFs recorded over $500 million in net outflows during mid-August, while Ethereum funds saw more than $400 million withdrawn in the same week.

These were among the largest combined outflows in the last few months. Just weeks earlier, in mid-July, Bitcoin exchange-traded products had reported inflows of more than $1 billion across two sessions.

The gridlock inside the Fed matters for crypto because it magnifies uncertainty around liquidity.

If policymakers move too slowly, credit stress could deepen and keep investors cautious. If they move too quickly, inflation could stay elevated, making assets like Bitcoin more attractive as a hedge.

Credit tightening sends investors looking beyond banks

Small and mid-sized companies are carrying the heaviest burden of higher rates. Data from S&P Global shows that 43% of firms in the Russell 2000 index were unprofitable at the end of 2024, the highest share since 2020 and even above 2008 levels.

Interest expenses for these firms climbed to 7.1% of total debt, the most since 2003. With refinancing costs rising and bankruptcy filings accelerating, many of these businesses are being cut off from affordable credit.

Collectively, small firms employ more than 62 million people, nearly 46% of the U.S. workforce, which makes the financing gap more than just a corporate issue.

Traditional credit channels are narrowing. Regional banks remain cautious about extending new loans, bond markets are expensive, and private credit funds tend to favor larger borrowers.

The result is a growing credit void that leaves smaller companies exposed. For investors, this tightening has historically been a signal to search for alternative channels of yield and liquidity.

Crypto is beginning to play a role in filling this space. Tokenized U.S. Treasuries have expanded rapidly in 2025, surpassing $7.3 billion in value locked across platforms according to data.

These products give investors direct access to short-term government debt through blockchain-based tokens.

On the lending side, DeFi protocols such as Aave (AAVE) and Maple Finance continue to handle billions in loans, with Aave alone managing nearly $37 billion in total value locked across multiple chains.

While most activity is still concentrated in crypto-native collateral, new structures are emerging that link lending pools to real-world borrowers, including fintech firms and supply chain companies.

Stablecoin usage also reflects this trend. On-chain settlement volumes in Tether (USDT) and USD Coin (USDC) rose through July and August, with both tokens now consistently handling trillions of dollars in monthly transactions.

For businesses facing tighter access to credit and slower settlement times through banks, stablecoins provide a liquid and transparent payment rail.

The scale of these experiments remains small compared with the U.S. credit market, but a financing environment where traditional debt is harder to secure creates stronger incentives for blockchain-based alternatives.

Market braces for wider institutional participation

Growing regulatory clarity is gearing crypto markets for wider institutional integration.

SEC guidance issued in July introduced new disclosure requirements specific to crypto ETFs, covering areas like custody, risks, and fraud safeguards, aiming to standardize applications and reduce approval timelines from up to 240 days to around 75 days.

Asset managers, including those pursuing altcoin ETFs, view this guidance as a turning point toward mainstream acceptance of digital assets.

Several high-profile ETF decisions are now slated for October. Proposals for spot ETFs linked to Ripple (XRP), Solana (SOL), Litecoin (LTC), and staking-enabled Ethereum products have moved through the SEC’s review queue, often via extended deadlines.

ETF expert Nate Geraci forecasts that the “spot crypto ETF floodgates” could open within two months, with specific expectations for XRP, SOL, and LTC ETF approvals, and staking approval for ETH on the horizon.

Prediction platforms and analysts share that optimism. Polymarket shows a 78% probability that an XRP ETF will be approved by year-end. Bloomberg ETF analysts have raised approval odds to 95% for the same category.

The Solana + Staking ETF, REX‑Osprey, has quietly launched in the U.S., listing on Cboe BZX. It raised $12 million in assets on day one and carries a 1.4% fee.

The product also offers a staking yield of around 7.3%. It is the first altcoin ETF available to traditional brokerage accounts, with other issuers such as Fidelity and VanEck in the pipeline.

Market sentiment has responded to these developments. The crypto market itself stands at nearly $4 trillion, with Bitcoin covering two‑thirds of that value. Altcoins including XRP, SOL, and LTC are now seen as next beneficiaries of regulatory clarity.

What to expect next?

The U.S. economy is caught between rising bankruptcies, persistent inflation, and policy indecision. At the same time, several spot ETF approvals are pending which could expand institutional access beyond Bitcoin. These forces create a mixed near-term outlook for crypto.

If inflation stays firm and the Fed delays cuts, Bitcoin may regain appeal as a hedge, while new ETFs could drive inflows. If credit stress deepens, however, investor caution could outweigh optimism.

Prices are likely to remain sensitive to both macro data and regulatory milestones over the coming months. As always, crypto is a volatile market. Never invest more than you can afford to lose.