US Debt Tops $40 Trillion, But Bitcoin's Debasement Trade Remains Unresolved

The US government's debt has surpassed $40 trillion, and the country is still running a deficit close to 6% of its GDP. Despite this, Bitcoin's price has fallen by nearly 37% from its record high reached last year.

This development raises questions about one of Bitcoin's oldest macro narratives: the debasement trade. According to analysts at BloFin, the trade has entered a 'second phase,' with investors now closely watching government attempts to control borrowing costs rather than just focusing on money creation.

The debasement trade is based on the idea that large fiscal deficits will eventually lead to easier monetary policy as governments cannot allow rising borrowing costs. However, this thesis weakened in early 2026 when Bitcoin fell below $62,000, along with gold and silver dropping sharply from their highs.

BloFin links the unwind of the debasement trade to the nomination of Kevin Warsh as Federal Reserve chair, which made investors less certain about aggressive balance-sheet expansion. However, the picture changed in August when the 30-year US Treasury yield reached its highest level since 2007, and the Treasury announced it would at least double the maximum size of liquidity-support buybacks.

Bitcoin rose around 25% in August, with gold gaining about 15%. BloFin argues that markets may care more about policy direction than immediate liquidity effects. The research notes that 'Treasury buybacks are not QE,' and investors may begin pricing an informal limit on borrowing costs if they believe rising long-term yields will repeatedly trigger intervention.