Bitcoin has seen its biggest one-week gain in more than three years, breaking back above the $80,000 mark today – up nearly 25 percent since early last week.
But the huge move has very little to do with the original cryptocurrency itself – and everything to do with the national debt, bond yields, interest rates and fears that the United States has completely lost its financial way.
‘This last bitcoin rally is being driven primarily by macroeconomic factors rather than by dynamics specific to the crypto market,’ CoinShares head of research James Butterfill told Morningstar.
Last Wednesday, Treasury Secretary Scott Bessent made a big play to lower government bond yields – doubling long-term bond buybacks and warning he would dip into endless government funds to keep yields in check – and that move was what really kicked off the rally.
‘The strong trigger in bitcoin was driven by Treasury's move to buy back bonds at the longer end of the yield curve,’ wrote Bernstein strategist Gautam Chhugani in a research note.
While the Trump administration has been shepherding a big new package of reforms through Congress that would clarify the rules that govern crypto markets, that effort has a long way yet to go.
Bitcoin is not the only exotic stock market asset that’s surging higher, as both gold and silver have also seen big gains over the same period – on a price per ounce basis, both gold and silver gained nearly 7 percent a piece over the last week.
Gold, silver and Bitcoin have all surged as the US dollar has weakened. Bessent’s move can be traced back to bond yields getting out of hand as the national debt surges higher. Together, these forces have weakened the dollar’s value relative to other currencies – a dynamic that Wall Street gurus are calling the 'debasement trade.'
So what’s the debasement trade all about? It means that big investors are getting more and more anxious that excessive government borrowing will force authorities to print money – that’s the ‘debasement’ part – eroding the value of the dollar.
As confidence in the dollar wanes, investors shift capital into tangible, safe-haven assets that cannot be artificially manufactured – that’s the ‘trade’ part – assets like gold, silver and crypto.
But the debasement trade is an economic phenomenon that will play out over the course of years, and it’s something that even a degree of fiscal responsibility in Washington, DC, could fix relatively quickly.
What about the near term? Is it finally time to invest in Bitcoin again?
‘The Bitcoin rally has been spectacular over the last week, but volume is starting to peter out and there are headwinds ahead that could stop this rally in its tracks,’ Nic Puckrin, markets expert and former Goldman Sachs analyst, told the Daily Mail.
Puckrin warned that with economic growth holding up and inflation not going away, the Federal Reserve will likely need to act on interest rates sooner rather than later.
‘Chair Warsh's keynote at Jackson Hole on Friday should give us a better idea of whether the Fed is leaning hawkish or dovish - and any indication that it's more hawkish will weigh on Bitcoin's price,’ Puckrin said.
‘There are too many headwinds to sustain the current breakout for too long,’ he added. ‘I still believe Bitcoin will surpass $100,000 again in the long term, but it won't be a linear journey.’
Meanwhile, there's still a lot of hope that the Trump administration can goad Congress into passing the Clarity Act, which would simplify the US rules governing cryptocurrencies in financial markets.
It would replace wide open legal gray areas with defined rules so crypto companies know how to follow the law, and force crypto exchanges to register and safely handle customer funds.
A big White House event last week touting the Clarity Act helped kick off the Bitcoin rally last week.
‘Renewed optimism around crypto progress in Washington helped light a fire under Bitcoin, Ethereum, and the broader market,’ eToro US Investment Analyst, Bret Kenwell told the Daily Mail.
‘The Clarity Act is driving sentiment, but I don't think it will pass this side of midterms - and this disappointment could also lead to a sell-off,’ warned Puckrin.
Global central bankers will gather at the annual Jackson Hole conference later this week, and a major speech by Fed chair Warsh could shed light on what the US central bank’s next rate move might look like.
Inflation is remaining stubbornly high, arguing in favor of a rate hike later this year. Fed rate hikes push government bond yields higher and pull capital out of speculative assets like Bitcoin – so for now, it appears that the best of the Bitcoin rally could be over.
‘The important thing is that this isn’t just about one week of Bitcoin performance,’ Milo CEO Josip Rupena told the Daily Mail.
‘Crypto had become an under-owned part of the market, and that creates the potential for very significant moves when sentiment changes.’
According to Rupena, Bitcoin is increasingly behaving like a conventional asset that’s appealing to big institutional investors.
‘If the rotation continues and investors begin treating digital assets as a meaningful portfolio allocation again rather than a niche trade, the implications could extend well beyond Bitcoin.’