US federal debt has crossed $40 trillion. The government is still 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. 

That creates an awkward question for one of Bitcoin’s oldest macro narratives. If rising debt and weaker fiat money are supposed to make scarce assets more valuable, why has Bitcoin spent much of 2026 falling?

Analysts at BloFin argue that it’s about how the debasement trade is changing. Its latest report finds that the trade has entered a “second phase.” Investors are now watching government attempts to control borrowing costs as closely as money creation itself.

The Trade Broke Before It Came Back

The debasement trade rests on a simple idea. Large fiscal deficits eventually create pressure for easier monetary policy because governments cannot allow borrowing costs to rise forever.

Investors then move toward scarce assets such as gold and Bitcoin.

That thesis weakened in early 2026. Bitcoin fell below $62,000, while gold and silver also dropped sharply from their highs.

BloFin links much of that unwind to the nomination of Kevin Warsh as Federal Reserve chair. Markets viewed Warsh as less likely to use aggressive balance-sheet expansion to absorb fiscal pressure.

The trade depends heavily on expectations. Investors still saw huge deficits, but the path toward easier monetary policy looked less certain.

Then the Bond Market Started Making Noise

The picture changed in August. On August 18, the 30-year US Treasury yield reached its highest level since 2007.

One day later, the Treasury said it would at least double the maximum size of liquidity-support buybacks in some 10-to-30-year bonds, from $2 billion to at least $4 billion per operation.

Bitcoin rose about 25% in August. Gold gained around 15%.

The timing is actually critical. Expanding buybacks immediately after a surge in long-term yields suggested policymakers may be becoming less willing to tolerate higher borrowing costs.

Treasury Buybacks Are Not QE

The Treasury cannot print money. It has to fund buybacks through cash, tax receipts, or new borrowing. That makes the mechanism very different from Federal Reserve quantitative easing.

Under QE, the Fed creates reserves and buys government debt. Treasury buybacks mostly change the composition of government liabilities.

Still, BloFin argues that markets may care more about the direction of policy than the immediate liquidity effect. As the research puts it: “Treasury buybacks are not QE.”

If investors believe rising long-term yields will repeatedly trigger intervention, they may begin pricing an informal limit on borrowing costs.

That is where financial repression enters the story.

Bitcoin Still Has a Real-Yield Problem

The current data shows why the debasement trade remains incomplete.

US public debt is around 101% of GDP, while the 2026 deficit is projected near $1.9 trillion. M2 has also returned to growth.

At the same time, 10-year real Treasury yields remain around 2.4%.

That is a major obstacle for Bitcoin. Investors can still earn a strong inflation-adjusted return from government bonds without taking crypto risk.

It also helps explain why Bitcoin’s 2026 price action still resembles a traditional crypto cycle.

Bitcoin peaked roughly 534 days after the April 2024 halving, close to the timing of the 2017 and 2021 cycle highs. It then fell by more than half before recovering.

The old four-year cycle still works.

The Next Test Is Whether Policy Starts Bending

BloFin’s thesis becomes much stronger if real yields start falling while fiscal pressure remains high.

That could happen if long-term borrowing costs keep creating stress and policy responses become larger. A more aggressive version would involve the Fed eventually stepping in.

History offers a clear precedent. From 1942 to 1951, the Fed capped long-term Treasury yields at 2.5%, helping the government finance wartime debt while inflation later pushed real bond returns deeply negative.

Bitcoin does not need that exact scenario to benefit. It needs investors to believe governments will increasingly protect the debt market from its own borrowing costs.

For now, Bitcoin is caught between a traditional crypto cycle that explains much of its 2026 weakness and a worsening fiscal backdrop that is starting to push scarce assets higher again.

The debasement trade has not failed. The bigger question is whether August marked the point when it became harder to ignore.

Source: BeInCrypto