Grayscale Says Rising U.S. Debt Is Driving Investors Back to Bitcoin
The debasement trade is returning as U.S. debt hits $40 trillion
Bitcoin is benefitting from a renewed focus on government debt, according to a new research note from Grayscale. The asset manager said the so-called debasement trade — when investors buy assets to protect against a currency losing value — is coming back and will primarily help Bitcoin.
The U.S. public debt surpassed $40 trillion for the first time last week. At the same time, the Treasury announced it would at least double the size of its bond buyback operations, which are designed to ease rising borrowing costs.
What the research note says
Zach Pandl, Grayscale's head of research, wrote that unchecked government debt growth undermines confidence in fiat currencies and pushes investors toward alternative stores of value like gold and certain cryptocurrencies.
The note argued that Treasury buybacks are treating symptoms rather than the root cause. "Heavy growth in government debt is driving up the cost of borrowing," Pandl wrote. "The Treasury is treating the symptoms (rising bond yields) because they cannot cure the disease (structural deficits)."
Grayscale said the debasement trade could benefit Bitcoin, Ethereum, and Zcash.
Why Bitcoin moved this week
Bitcoin rose last week after the Treasury buyback announcement. The dollar had its worst week of August and was trading near a three-month low on the same day.
Bitcoin hit a weekly high of $81,281 before settling around $77,493 on Friday afternoon. Over 30 days, the coin jumped more than 20%, though it was largely flat over a single day.
The debasement trade was popular last year and helped fuel Bitcoin's earlier rally. That momentum faded after October as traders shifted attention to artificial intelligence stocks.
What some Bitcoin supporters believe
The report noted that as debt and interest payments grow, the government faces three choices: raise taxes, cut spending, or issue more debt. Bitcoin supporters believe the most politically likely path is expanding the dollar supply, which they argue is ultimately negative for the dollar and positive for scarce assets like Bitcoin.
Key numbers
- U.S. public debt exceeded $40 trillion
- Bitcoin weekly high: $81,281
- Bitcoin Friday price: $77,493
- Bitcoin 30-day gain: over 20%
- Assets named by Grayscale: Bitcoin, Ethereum, Zcash
