Bitcoin has completed a remarkable turnaround over the past week, rising from below $65,000 on Wednesday to a three-month high above $81,000 earlier this morning.
The movement began abruptly on August 19, accelerated in the following days and, unlike previous escape attempts, was not halted painfully in its tracks. Clearly, something has changed in the market, but the question is what exactly.
Who lit the fuse
The most talked about reason behind this first increase was the announcement last Wednesday by the US Treasury Department that the government would at least double purchases of longer-term Treasury securities. This meant an increase in debt over 10 to 30 years from $2 billion to at least $4 billion per deal.
The move was primarily aimed at improving liquidity and easing pressure on the long end of the bond market, where borrowing costs had soared. Risk assets like BTC, alongside gold, immediately responded with a surge from $64,000 to $70,000, while Treasury yields initially declined.
This is where this narrative falls apart. Long-term yields rebounded almost immediately, while the price of BTC surged another $10,000 to $11,000. According to Kobeissi Letter analysts, this suggests that investors interpreted the Treasury’s intervention not only as support for falling yields, but as evidence of growing pressure surrounding US fiscal policy.
As previously reported, the US federal debt recently surpassed $40 trillion, while persistent deficits and massive refinancing needs have intensified uncertainty over how the government will handle the situation.
Commercial returns of devaluation
The US dollar is the second macroeconomic element in this equation. The Treasury’s intervention put pressure on the greenback and reignited calls from Wall Street for a depreciation trade: capital is moving into scarce assets, like BTC and gold, as investors fear that fiscal and monetary policies will gradually erode fiat purchasing power.
The precious metal surpassed $4,600 an ounce during bitcoin’s rally past $81,000. This synchronized development has strengthened the argument that investors view both assets as alternatives to government-issued currency.
Ray Dalio added fuel to the fire a few days ago, warning of a potential US debt crisis and recommending investors own gold and a “little bit of bitcoin”, while the dollar fell at a multi-month low.
Changes in liquidity expectations
The Treasury Department’s move led to another significant change as markets increasingly question whether the government could more aggressively use its massive Treasury general account to prop up the bond market. The account recently stood at around $950 billion, and speculation that some of that liquidity could actually be deployed through expanded Treasury operations has attracted a lot of attention.
While this is not quantitative easing, in fact it is a long way from it: if Treasury measures reduce pressure on long-term borrowing costs, weaken the dollar, or inject additional liquidity into financial markets, the broader environment becomes considerably more favorable for scarce and risk-sensitive assets such as BTC.
Who amplified the movement
Appetite for BTC Via Spot Bitcoin ETFs came back strong last week as the numbers showed a massive resurgence: nearly $2 billion entered the funds in just five days, hitting a three-month high. As expected, demand accelerated after Wednesday.
Moreover, the rapid move from below $65,000 to $70,000 initially and then to $75,000 a day later forced heavily leveraged bearish trades to close their positions. More than $4 billion in shorts were liquidated in less than two days, which partly explains the extreme nature of the reaction.
The Treasury announcement was the initial spark, followed by falling confidence in the dollar, which, alongside the US fiscal trajectory, reinforced demand for scarce assets. ETF inflows added real cash demand, while short-term liquidations accelerated an already powerful surge.
The post Why Did Bitcoin Explode Past $81,000? 4 Macro Factors Behind the Rally appeared first on CryptoPotato.
About the Author
