US Debt Hits $40 Trillion, Bitcoin’s Debasement Trade Questioned

US federal debt has surpassed $40 trillion, with the deficit hovering around 6% of GDP and long‑term Treasury yields remaining elevated. At the same time, Bitcoin is trading near $80,000, about 37% below its previous all‑time high.

Why the traditional debasement narrative is under pressure

The classic debasement thesis argues that large fiscal deficits eventually force easier monetary policy, driving investors toward scarce assets such as gold and Bitcoin. In early 2026 the narrative weakened as Bitcoin fell below $62,000 and precious metals also retreated, a move linked by analysts to the nomination of Kevin Warsh as Federal Reserve chair, which reduced expectations of aggressive balance‑sheet expansion.

Bond market dynamics and Treasury buybacks

In August, the 30‑year US Treasury yield hit its highest level since 2007. The Treasury responded by announcing a minimum doubling of liquidity‑support buybacks for 10‑ to 30‑year bonds, from $2 billion to at least $4 billion per operation. Bitcoin rose about 25% in August, while gold gained roughly 15%.

Analysts note that Treasury buybacks differ from Federal Reserve quantitative easing because the Treasury must fund them with cash, tax receipts, or new borrowing. The market may care more about the policy direction than the immediate liquidity impact.

Real‑yield environment and Bitcoin’s price pressure

US public debt now stands at roughly 101% of GDP, with the 2026 deficit projected near $1.9 trillion. Real yields on 10‑year Treasuries remain around 2.4%, offering investors an inflation‑adjusted return that competes with Bitcoin’s risk profile. This real‑yield backdrop helps explain Bitcoin’s recent weakness, which aligns with a typical four‑year crypto cycle following the April 2024 halving.

Potential future shift

If real yields were to fall while fiscal pressure stays high, the debasement trade could regain strength. Historical precedent exists from 1942‑1951, when the Fed capped long‑term yields to finance wartime debt, eventually leading to negative real returns on bonds.

For now, Bitcoin sits between a conventional crypto cycle that accounts for much of its 2026 decline and a fiscal environment that may begin to lift scarce assets again.