$40 trillion in debt vs. BTC and gold

XAU/USD

Key zone: 4,500.00 - 4,600.00

Buy: 4,650.00 (on strong positive fundamentals); target 4,950-5,100; StopLoss 4,550.00

Sell: 4,500.00 (on a pullback following a retest of 4,600); target 4,250-4,150; StopLoss 4,600.00

Concerns surrounding U.S. debt and the deficit are pushing investors toward Bitcoin and gold. Investors are increasingly focusing on the purchasing power of fiat currencies and looking for alternative ways to preserve wealth. The U.S. debt market is gradually becoming one of the main macro drivers of the market.

U.S. government debt has exceeded $40 trillion, of which about $32.266 trillion was debt held by investors, while another $7.782 trillion consisted of intragovernmental obligations. The yield on 30-year Treasuries rose to nearly two-decade highs, while the U.S. Treasury decided to at least double the volume of buybacks of long-term bonds.

The market responded in an unusual way: Bitcoin and gold rose simultaneously. Fed Chair Kevin Warsh’s speech at the Jackson Hole meeting could shape expectations regarding Fed support for Treasury bond purchases, which would affect crypto assets, metals, and long-term yields.

A reminder:

BTC and gold are currently receiving a common boost from concerns about the potential financial repression of yields, but their reaction mechanisms differ: gold behaves primarily as a defensive monetary asset, while Bitcoin remains simultaneously sensitive to dollar liquidity and real yields. Therefore, the positive correlation could strengthen sharply if fiscal policy is eased and break down just as quickly if the Fed sends a hawkish signal.

The crypto market’s reaction was almost immediate. At the moment, BTC is heading into Jackson Hole at around $80,000; over eight sessions, inflows into spot ETFs amounted to about $2.8 billion, with the increase occurring while futures leverage declined — an important indicator when assessing the quality of the rally.

At the same time, the yield on 30-year Treasuries fell from approximately 5.34% to 5.19%.

Part of BTC’s move was explained by ordinary market mechanics: amid the rally, about $4 billion in bearish cryptocurrency positions were liquidated. Additional support came from approximately $650 million in weekly inflows into U.S. spot Bitcoin ETFs.

However, a short squeeze alone does not explain why Bitcoin began moving almost in tandem with gold.

It appears that investors are selling assets dependent on the stability of fiat currencies’ purchasing power and increasing positions in instruments with limited supply — primarily gold? BTC, ETH.

But Treasury buybacks are not a new round of quantitative easing. That is precisely why the current market optimism is conditional.

If long-term yields once again move toward 5.3–5.5%, Treasury operations alone will not be enough to reverse the trend for long. And the market will be looking in the Fed Chair’s speech for more than just hints about the September FOMC meeting.

Far more important is Warsh’s view of the boundary between monetary and fiscal policy.

The first scenario — the Fed distances itself from the Treasury. For markets, this potentially means:

• pressure on gold;
• reduced attractiveness of Bitcoin;
• a return of some capital to interest-bearing dollar assets.

In this case, the rise in BTC and gold after August 19 could turn out to be partly speculative and undergo a correction.

The second scenario — Warsh acknowledges that disruptions in the functioning of the Treasury market may require Fed involvement.

Then the chain would be the opposite:

suppression of long-term yields → lower real rates → pressure on the USD → higher inflation and fiscal-risk premia → higher gold and Bitcoin.

So, what does this mean?

Gold has already proven its status as a safe-haven asset over several centuries. Bitcoin is only trying to establish itself in this role — and periodically reverts to behaving like a high-risk technology asset.

Therefore, today’s high positive correlation between BTC and gold is not proof that Bitcoin has definitively become “digital gold.” The market is simply trading one common threat: the possibility that one day maintaining the level of government debt will become more important to the Fed than preserving high real interest rates.

Kevin Warsh’s position on this boundary between independent monetary policy and support for the government bond market could determine whether the joint rally in Bitcoin and gold continues — or whether the current correlation turns out to be yet another market anomaly.

So we act wisely and avoid unnecessary risks.

Profits to y’all!