Bitcoin (COIN:BTCUSD) surged to its highest level in more than three months on Tuesday, as concerns over the health of U.S. public finances weighed on the dollar and encouraged investors to increase exposure to cryptocurrencies.
The world's largest cryptocurrency climbed 4.7% to $80,760.8 by 01:57 ET (05:57 GMT), having briefly touched $81,220.4, its strongest level in three months.
The latest advance puts Bitcoin on course to record gains in eight of the past nine sessions following a sharp rebound over the previous week. Short-covering has provided additional momentum, with the rally forcing traders holding bearish positions to exit the market.
Much of Bitcoin's latest strength has been linked to increasing concerns about U.S. fiscal policy and the longer-term outlook for the dollar.
Those worries intensified last week after the U.S. Treasury announced plans to roughly double the pace of its bond buybacks in an effort to contain the recent rise in yields.
The announcement prompted speculation that the dollar could come under pressure as the Treasury intervenes more actively in bond markets, encouraging what investors have described as the "debasement trade."
"The Treasury's buyback announcement has shifted the market narrative from higher yields to USD debasement – fuelling a weaker USD, stronger gold and higher breakevens. While QE comparisons are overdone, rising policy uncertainty and questions around Fed independence are weighing on the USD," OCBC analysts said in a note.
The shift has increased investor interest in assets such as gold and cryptocurrencies, which are viewed by some market participants as offering protection from instability in government bond and currency markets.
Bitcoin has been a significant beneficiary of that trend. Its relatively weak year-to-date performance before the recent recovery has also attracted investors looking to buy at lower valuations.
The rapid recovery has caused substantial losses for traders betting against Bitcoin.
Coinglass data showed that more than $457 million of Bitcoin short positions were liquidated over the previous 24 hours as prices continued to climb.
The latest wave of liquidations follows similar activity last week, when Bitcoin's sudden rebound wiped out billions of dollars in bearish positions.
The impact extended into other cryptocurrency markets. According to Coinglass, approximately $112.3 million of short positions in Ether were also liquidated during the past 24 hours.