[Bitcoin Now] US Fiscal Burden Sparks Rebound... Can the Bitcoin Rally Continue?

Buying Momentum amid Dollar Dilution Concerns

Short Squeezes and Policy Momentum

The Challenge of Securing Long-Term Buyers

Amid growing concerns over the weakening value of the dollar due to the rising burden of U.S. government debt, Bitcoin has continued its rally. The rally has been fueled by a combination of currency debasement trades, large-scale forced liquidations (short squeezes), and expectations of regulatory easing, all of which have contributed to widening price gains. However, unlike gold, which is backed by robust buying from central banks, Bitcoin's price support base is seen as weak, highlighting the importance of securing solid long-term buy-side demand.

According to the financial investment industry on September 1, the price of Bitcoin stood at $88,812.1 on January 1 of this year but climbed to its annual high of $97,838.4 on January 14 before turning downward. On July 1, it dropped as low as $57,832.5, then continued to hover in the $60,000 range for an extended period. However, as the dollar entered a period of weakness last month, capital inflows pushed Bitcoin to $77,517.0 as of 1:30 p.m. on August 31.

U.S. government debt has exceeded $40 trillion this year and continues to rise sharply. According to iM Investment & Securities, with both rising interest rates and ballooning debt, the annual interest expense of the U.S. government has already topped $1 trillion. As the vicious cycle of widening fiscal deficits, increased Treasury issuance, higher interest costs, and rising fiscal burdens becomes entrenched, the U.S. Treasury has increased the size of its 10- to 30-year bond buybacks from at least $2 billion to a minimum of $4 billion per round. This direct intervention aims to stabilize the supply and demand for long-term Treasuries and curb the rise in long-term yields caused by increased supply. Immediately after the announcement, the yield on the 30-year U.S. Treasury dropped around 9 basis points in one day. Nevertheless, it is widely recognized in the market that the buyback expansion alone is unlikely to fully mitigate the upward pressure on long-term yields resulting from fiscal risks.

In fact, as the dollar weakens amid growing concerns about fiscal sustainability, debasement trades aimed at countering rising government debt and currency devaluation are spreading. Earlier this year, in periods of dollar weakness, gold prices rose, and more recently, gold rebounded again as the dollar turned weaker. Bitcoin has joined the trend, showing a much steeper rally and greater price elasticity compared to gold and silver.

The extra gains in Bitcoin have been decisively influenced by the unique leverage structure of the cryptocurrency market and inflows into spot assets. Over the past 90 days, as weakness persisted in digital assets, a large number of short positions accumulated in the futures market, betting on further declines. However, with the expansion of bond buybacks and the dollar's weakness prompting a faster-than-expected rebound, a short squeeze occurred, amplifying Bitcoin's price surge.

Policy momentum and changes in the institutional environment have also played a role. President Donald Trump reiterated his support for the Clarity Act and urged Congress to pass it swiftly. In addition, there is growing speculation that the U.S. government may refocus on revitalizing the stablecoin market to attract demand for Treasuries as part of efforts to address the debt problem. Since stablecoin issuers purchase large quantities of U.S. short-term Treasuries as reserves, it is expected that the enactment of the Genius Act, scheduled for introduction in January next year, may be accelerated.

Nonetheless, apart from the short-term rebound, a sober assessment of Bitcoin’s medium- and long-term supply and demand structure is needed. There is a key difference between gold and Bitcoin—both seen as debasement assets—regarding the presence of structural buyers who continue accumulating the asset regardless of price. In the case of gold, central banks of major economies have been structurally increasing their purchases to reduce reliance on the dollar and diversify foreign exchange reserves. In contrast, structural nationwide demand for Bitcoin is extremely limited. Bitcoin held by the U.S., China, and the U.K. has mostly been acquired through the seizure of illicit funds, not for foreign exchange reserve purposes. Considering the high price volatility, as well as regulatory and accounting uncertainties, it remains difficult for central banks of major economies to allocate a meaningful portion of their foreign reserves to Bitcoin.

Hyunkyung Yang, a researcher at iM Investment & Securities, stated, "While gold is supported by central banks as price-insensitive, long-term buyers that underpin the price floor, Bitcoin depends heavily on exchange-traded fund (ETF) inflows and on the risk appetite of retail and institutional investors." She continued, "When short covering occurs, as in the latest episode, Bitcoin can show much greater price elasticity than gold, but short position liquidations are essentially a one-off liquidity event." She added, "For Bitcoin to establish itself alongside gold as a representative debasement asset over the medium to long term, it is crucial to see the emergence of new, long-term buyers who are less sensitive to price and market cycles, beyond ETFs and digital asset holding companies (DATs)."

This content was produced with the assistance of AI translation services.