Bitcoin rises 25% to $78,000 as Treasury buybacks weaken dollar

Treasury buybacks aimed at capping long-end yields have pushed the dollar lower and sent Bitcoin and gold to multi-week highs.

Bitcoin rose more than 25% this week to break $78,000, its highest since June, as Treasury Secretary Scott Bessent's expanded bond buybacks weakened the dollar.

Nomura's Charlie McElligott called the combination of rising gold, a falling dollar and stronger Bitcoin a "pressure release valve," with market anxiety shifting elsewhere as Washington tries to stabilize long-end rates.

The Treasury doubled its buyback cap for longer-dated debt from $2 billion to at least $4 billion per operation on Wednesday, targeting securities maturing in 10 to 30 years starting Sept. 9. Bessent said a day later the figure was a floor, not a ceiling, and could rise further depending on market conditions. The 30-year yield had touched its highest level since 2007 before the announcement pulled it sharply lower.

The devaluation trade faces a test next week, with Nvidia's earnings and the Jackson Hole symposium set to show whether AI-driven capital demand and Federal Reserve policy align with Washington's push for cheaper borrowing.

The Treasury's intervention had a direct effect on markets for less than a day. Long-end yields briefly fell, then came under pressure again and finished the week roughly flat. Bessent told CNBC the market "overreacted a bit" and stressed the Treasury has a "powerful toolbox."

The move nonetheless reinforced a "currency devaluation trade" narrative built on a fiscal deficit approaching $2 trillion and concern over the direction of U.S. economic policy. Barclays strategists said the dollar was the biggest loser from the yield-suppression effort, while renewed fiscal worries revived haven demand for gold, which climbed to a three-month high.

Bitcoin's 90-day correlation with gold stands at its highest level since the pandemic, strengthening the case for crypto as a hedge against currency debasement, even though this week's rally also drew on short-position liquidations and renewed momentum in the digital-asset market.

Structural pressures persist

Manulife Investment Management senior portfolio manager Nathan Thooft said the Treasury can influence liquidity and sentiment but cannot persistently suppress the fundamentals of growth, inflation, deficits and supply. Corporate bond issuance, particularly from hyperscale technology companies financing AI investment, is adding pressure on long-end rates, Barclays strategists noted.

Bessent voiced frustration with AI companies' borrowing behavior, saying their debt issuance is "almost insensitive to yields" because they believe returns on AI infrastructure will be substantial regardless of the interest rate they pay. JPMorgan Asset Management portfolio manager Priya Misra said a global contest for capital is pushing up equity discount rates, from governments funding defense and energy security to the entire AI ecosystem.

The 5% threshold

Bank of America strategist Michael Hartnett sees 5% on the 30-year Treasury as a key line, warning that failure to break below it would intensify pressure on the dollar and highly leveraged areas including AI hyperscalers and private credit. On Friday, Bridgewater founder Ray Dalio issued a starker warning, advising investors to cut bond exposure and hold gold and some Bitcoin to guard against a potential U.S. debt crisis.

Misra noted markets are absorbing policy shocks faster because of an expectation of "stock market protection" from the administration, with Trump or the Treasury intervening whenever risk assets or bonds wobble.

Can the devaluation trade last?

Spectra Markets president Brent Donnelly initially read Bessent's announcement as a signal to buy Bitcoin and short the dollar against the Swiss franc, but the buyback's tiny size relative to the overall Treasury market gave him pause. "I think the violent moves in the dollar, gold and Bitcoin will probably cool considerably from here," he said. "Bessent's actions reinforce structural themes, but those themes aren't new, and there's no near-term catalyst to trigger the next leg of the devaluation trade."

Deeper institutional tension remains. The Treasury can adjust the size and maturity of bond issuance but cannot create money — that is the Fed's power. Fed Chair Warsh has emphasized shrinking the central bank's market footprint, even as resilient growth, persistent inflation and heavy capital spending keep rates elevated.

This article is for informational purposes only and does not constitute investment advice.