Another tailwind has been President Donald Trump’s recent appeal to the US Congress to pass a bill, called the “Clarity Act,” that would bring clearer definitions to the growing sector. After the speech got aired last week, Bitcoin, the world’s largest cryptocurrency, has gone up 16%.
It was last at USD 80,323.24 in Asian hours, having earlier touched USD 81,237.94, its highest level since mid-May. Bitcoin is up 28% so far in August, set for its biggest monthly gain since November 2024.
As per the analysts, cryptocurrencies got a big boost after the US Treasury’s decision to buy back more long-dated bonds to help cap the gains in the long-end yields, a move that has led to the US dollar bearing the brunt of investor anger.
In his latest media address, Treasury Secretary Scott Bessent has stressed that the Treasury will continue with its regularly scheduled debt auctions, including for long-dated bonds, despite the move to increase buyback sizes of 10- to 30-year securities.
He further added that the Treasury hasn’t purchased any bonds yet in the enlarged buybacks, which will start on September 10 for 10- and 20-year securities.
Bessent, a former hedge fund manager with in-depth experience in sovereign debt and currency markets, recently surprised global bond investors by announcing that his department had doubled the size of its quarterly repurchases of longer-dated bonds after their yields reached the highest levels in nearly two decades.
While the decision ended up angering a section of investors, it did help bring down yields on 10-year Treasury notes and 20- and 30-year bonds for a short time, providing the Trump administration some relief from the high bond yields that are rapidly driving up federal debt service costs.
However, yields on the longer-dated maturities had largely retraced those drops by the end of the last week.
While Bessent didn’t talk much about the funding source of the Treasury buybacks, the Treasury General Account (TGA) at the Federal Reserve reportedly provides one. As per the analysts, tapping that account would spare the need to finance the buybacks by issuing new, shorter-dated Treasuries. However, the move would also eat into Uncle Sam’s cash reserves.
Unlike the Fed, the Treasury cannot create money at will, so Bessent’s department ultimately has two options: either pay for the buybacks from existing cash resources or borrow the funds.
Further borrowing, as per the experts, should be done at shorter maturities so that it doesn’t end up disturbing the goal of the buybacks, which is to boost liquidity in the market for longer-dated bonds.
Talking about the TGA, the federal government’s checking account, the latter is also used to pay for daily government operations like federal worker salaries, defense contracts, and Treasury interest and principal obligations. It, as of August 19, stood at about USD 940 billion. Treasury has further beefed up the TGA, just to pay for some USD 166 billion of refunds it owes to importers after the US Supreme Court earlier this year ruled a major chunk of Trump’s import tariffs were illegal.
Bessent further argued that the upswing in yields to nearly two-decade highs was unwarranted against the vibrancy of the American economy.
Tim Sun, senior researcher at HashKey Group, saw the official’s messaging reinforcing the market’s view that, at least through the midterm elections, American policymakers may have a lower tolerance for a further rise in long-end yields.
“That would create a relatively supportive macro backdrop for assets such as bitcoin and gold,” Sun said, while speaking with Reuters.
Talking about gold, the yellow metal has been the other beneficiary of the dollar weakness, rising to a three-month high.
“The Treasury announcement is precisely the type of thing bitcoin loves,” Geoff Kendrick, global head of digital assets research at Standard Chartered, said in a note last week, adding that bitcoin was built to allow investors a way to avoid this type of intervention.
“The action stoked increased chatter around the so-called debasement trade, where the moves to prevent long-end yields from reaching market-clearing levels via buybacks lead the pressure to shift from the bond market to the currency market,” the analyst stated further.
“This (Treasury announcement) prompted buyers to scramble into physical and digital assets as debasement trade fears re-emerged. A sustained break above this level would pave the way for a move towards USD 95,000–USD 100,000,” said Tony Sycamore, a market analyst at IG.