Rising U.S. Debt Triggers Return of Debasement Trade to Benefit Bitcoin: Grayscale

The debasement trade has returned — and bitcoin stands to gain.

This assessment comes from the crypto research division at asset manager Grayscale, which stated in a weekly report that currency debasement by the U.S. government would funnel capital toward digital assets.

“Unchecked government debt growth undermines the credibility of fiat currencies and drives investors to seek out alternative stores of value like physical gold and certain cryptocurrencies,” stated the note authored by Zach Pandl, the firm’s head of research, noting that bitcoin would be the primary beneficiary.

The concept known as the debasement trade occurs when market participants purchase assets to protect against currency depreciation. This investment strategy gained substantial traction last year and supported bitcoin’s rally, though the cryptocurrency’s momentum slowed after October as market focus shifted toward artificial intelligence equities.

However, over the past week, bitcoin gained ground following reports indicating the U.S. Treasury plans to at minimum double the scale of its liquidity-support buyback programs. That announcement weighed heavily on the dollar while bolstering non-yielding assets.

“That buybacks are needed at all is the problem: heavy growth in government debt is driving up the cost of borrowing,” the note further explained. “The Treasury is treating the symptoms (rising bond yields) because they cannot cure the disease (structural deficits).”

The report also pointed out that on the identical day the buyback plans were revealed last week, the Treasury reported that total U.S. public debt had surpassed $40 trillion for the first time.

Faced with escalating debt and interest obligations, the government is left with choices to hike tax rates, trim spending, or issue additional debt.

Bitcoin advocates view inflating the money supply as the more politically viable route — an outcome that damages the dollar’s value while proving favorable for scarce assets such as bitcoin.

Following bitcoin’s upward momentum last week, the U.S. dollar recorded its steepest weekly drop in August, falling to a three-month low.

Bitcoin was changing hands at $77,493 on Friday afternoon in New York after reaching a peak of $81,281 earlier in the week. While the cryptocurrency remained flat over the past 24 hours, it has rallied by more than 20% across a 30-day timeframe.

Originally published at https://bitcoinmagazine.com/news/debasement-trade-to-benefit-bitcoin.