Bitcoin, gold rebound as Treasury move and Washington boost spark 'debasement trade'

Bitcoin and gold shot higher this week, driven by frantic bond market action and a fresh push from Washington on crypto regulation. Bitcoin rose above $77,000 on Friday, while gold climbed to $4,661, after both assets had spent months in a slump.

Bitcoin had dropped from a January high of around $95,000 to below $60,000 at the end of June. Gold hit a high above $5,300 in January but fell to around $4,000 in June as rising rates made interest-bearing investments more attractive.

Treasury steps into the bond market

The first jolt arrived Wednesday when the US Treasury Department announced plans to significantly increase its buybacks of long-term Treasurys, or government debt. In a surprise announcement, the Treasury said it would at least double the size of its planned purchases of longer-term government debt.

The maneuver was intended to calm bond markets after a sustained sell-off, meaning investors were asking for higher yields to lend money to the US, which investors suddenly viewed as riskier. Treasury Secretary Scott Bessent is attempting to lower long-term borrowing costs, a move that can put upward pressure on inflation at a time when inflation is already elevated. Bessent's maneuver could handcuff the Federal Reserve, which fights inflation by raising interest rates.

Debt, inflation, and the debasement trade

On the same day, the US national debt surpassed a record $40 trillion. The milestone came just five months after the US hit $39 trillion in March, and five months after that level was $38 trillion in October. Anxiety over inflation is already high, particularly because of the conflict in Iran and soaring energy prices.

The dollar took a significant downward swoop Wednesday, and money shifted into what is known as the "debasement trade," when investors flood into alternative assets. Gold rose more than 2% Wednesday. Bitcoin jumped more than 20% this week.

Crypto has a big week in Washington

On Wednesday, President Donald Trump, who banked nearly $1.2 billion from his crypto businesses last year, held a cryptocurrency conference at the White House. He called on Congress to pass the crypto-friendly Clarity Act, saying it would "keep us ahead of China, keep us ahead of everyone else."

Trump yielded the floor to Commodity Futures Trading Commission Chair Mike Selig, who vowed to "use every tool available" to advance Trump's agenda. Selig's comments came ahead of a CFTC meeting Thursday examining ways the agency can use its existing authority to ease crypto rules. A day earlier, other regulators proposed rules making it easier for crypto companies and projects to raise money from the public.

Bitcoin squeeze adds fuel

Bitcoin had been stuck between $62,000 and $67,000 for weeks, and many investors bet it would stay in that range. When the Treasury announced its buybacks, Treasury yields fell, the dollar weakened, and bitcoin blasted through $67,000.

Investors who had shorted bitcoin, or bet its price would remain subdued, were forced to close their positions as bitcoin surged. Closing those bearish positions required buying back the digital asset, adding more upward pressure. By Friday, more than $4 billion in bearish crypto positions had been liquidated during the rally, according to CoinGlass, which tracks cryptocurrency derivatives markets.

The rally underscores how global investors are turning to alternative assets as US debt and inflation concerns build, a trend now visibly extending to bitcoin.