Bitcoin and gold soared this week, both getting a boost from some frenetic action around the bond market, and the cryptocurrency also benefited from activity in Washington. Bitcoin had fallen from a January high of around $95,000 to below $60,000 in late June. Investors shied away from speculative assets earlier in the year and cryptocurrency supporters were concerned about the lack of movement on proposed regulation of the industry. On Friday, bitcoin rose above $77,000. Gold peaked above $5,300 in January but fell to around $4,000 in June as rising rates made interest-bearing investments more attractive. Gold rose to $4,661 on Friday. The first jolt came on Wednesday when the Treasury Department announced plans to significantly increase its buybacks of Treasury bonds, or long-term government debt. On the same day, President Donald Trump, who earned around $1.2 billion last year from various cryptocurrency holdings, urged Congress to move quickly on cryptocurrency legislation. There was an almost immediate reaction, including a sell-off in dollars and a jump in the value of gold and bitcoin as investors shifted toward alternative assets. How these two investments gained traction can be understood in the context of several developments this week. The Treasury entered the bond market with force. In a surprise announcement on Wednesday, the US Treasury Department said it would at least double the size of its planned purchases of longer-term government debt. The move was aimed at calming bond markets after a sustained sell-off, which meant investors were asking for higher yields to lend money to the US, which investors suddenly saw as riskier. That’s because while the Treasury’s intervention worked, at least for a short period, it also raised questions about whether the government is trying to reduce borrowing costs despite inflationary pressures. Treasury Secretary Scott Bessent is trying to reduce long-term borrowing costs, a move that could put upward pressure on inflation at a time when inflation is already high. Bessent’s move could put handcuffs on the Federal Reserve, which fights inflation by raising interest rates. Debt, inflation and “debasement trade” intensify. Then there’s the national debt, which surpassed a record $40 trillion on the same day the Treasury actions unfolded. The historic figure was recorded just five months after the United States reached a record debt of $39 trillion in March. Five months earlier, in October, it reached $38 billion. There is already a lot of anxiety about inflation, particularly due to the conflict in Iran and skyrocketing energy prices. If US bond yields do not truly reflect risk, you can often see that reflected in the value of the US currency, which suffered a significant drop on Wednesday. So where does the money that was invested in dollars or Treasury bonds go? This week, it appears to have been funneled into what is known as the “downgrade trade,” as investors flood into alternative assets like gold, which rose more than 2% on Wednesday. Downgrade trading now includes bitcoin. Bitcoin jumped more than 20% this week. Subscribe to Morning Wire: Our flagship newsletter breaks down the day’s biggest headlines. Cryptocurrencies had a very good week in Washington On Wednesday, President Donald Trump, who raked in nearly $1.2 billion from his cryptocurrency businesses last year, held a cryptocurrency conference at the White House where he called on Congress to pass the cryptocurrency-friendly Clarity Act, saying it would “keep us ahead of China, keep us ahead of everyone else.” Trump then turned the floor over to Commodity Futures Trading Commission Chairman Mike Selig, who promised to “use every tool available” to advance Trump’s agenda. Selig’s comments came ahead of a CFTC meeting on Thursday that will examine ways the agency can use its existing authority to relax cryptocurrency rules. A day earlier, other regulators proposed rules that would make it easier for cryptocurrency companies and projects to raise money from the public. Since taking office, Trump has pushed policies favorable to the cryptocurrency industry and reversed a regulatory crackdown by the Biden administration. Bitcoin’s big squeeze caused prices to rise even further. Bitcoin can sometimes take a hit when the US dollar is on the ropes as investors try to dump the US currency. But you don’t typically see the kind of related move that was seen with bitcoin this week. The price of bitcoin had been stuck between $62,000 and $67,000 for weeks. Investors took advantage of that weakness, with many betting that the cryptocurrency would remain stuck in that range for some time. However, on the day the Treasury announced its buybacks, bond yields fell, as did the dollar, and bitcoin surpassed that upper level of $67,000. The Treasury actions negatively affected the money investors could make on U.S. bonds and the dollar, and boosted the value of bitcoin. That meant that many investors who had shorted bitcoin, or bet that its price would stay low, were forced to close their positions as bitcoin rose. Closing those bearish positions required buying back the digital asset, which added even more upward pressure to the price of bitcoin. As of Friday, more than $4 billion in bearish crypto positions had been liquidated during the rally, according to CoinGlass, which tracks cryptocurrency derivatives markets. And since bitcoin was already rising, those forced purchases added fuel to the rally, potentially triggering even more liquidations as prices rose.
