Debasement Trade Revived as US Debt Hits $40 Trillion

The US federal debt has surpassed $40 trillion, with the government running a deficit close to 6% of GDP. Long-term borrowing costs remain high. Yet Bitcoin is trading near $80,000, roughly 37% below its record high from last year.

This discrepancy raises questions about the 'debasement trade,' which suggests that rising debt and weaker fiat money make scarce assets more valuable. However, analysts at BloFin argue that this trade has entered a second phase, where investors are now watching government attempts to control borrowing costs as closely as money creation itself.

The debasement thesis weakened in early 2026 when Bitcoin fell below $62,000, while gold and silver also dropped sharply from their highs. This was partly due to the nomination of Kevin Warsh as Federal Reserve chair, who markets viewed as less likely to use aggressive balance-sheet expansion to absorb fiscal pressure.

However, the picture changed in August, when the 30-year US Treasury yield reached its highest level since 2007. The next day, the Treasury announced it would double the maximum size of liquidity-support buybacks in some 10-to-30-year bonds. This expansion of buybacks suggested policymakers may be becoming less willing to tolerate higher borrowing costs.