Key Highlights:
- Bitcoin surged past $87,000 before a slight correction, rallying more than 35% since mid-August amid surging demand for the “debasement trade.”
- U.S. Treasury debt buyback operations targeting 10- and 20-year notes have tripled in size to support bond market liquidity and ease borrowing pressures.
- Cooling labor metrics—highlighted by September payrolls adding just 29,000 jobs—have dropped October Federal Reserve rate hike expectations to roughly 24%.
Bitcoin Rallies on Debasement Trade and Treasury Debt Buybacks
Bitcoin has demonstrated strong resilience against macroeconomic hurdles, driven substantially by heightened investor interest in the debasement trade. This investment thesis reflects growing concerns that persistent federal deficit spending and unchecked currency expansion will steadily erode the purchasing power of the U.S. dollar. Rather than remaining tied exclusively to loose monetary policy, crypto assets have found momentum in broader fiscal instability.
According to Vanessa Grellet, managing partner at crypto-focused venture firm Arche Capital, “the debasement trade doesn’t require low interest rates,”
given investors’ growing focus on federal deficits and the government’s rising interest bill.
Supported by these macroeconomic currents, Bitcoin’s price briefly crossed the $87,000 threshold last week before experiencing a minor downward correction. The leading digital asset has advanced by more than 35% since the middle of August. This upward momentum accelerated shortly after the U.S. Department of the Treasury revealed plans to double its long-dated debt buybacks, targeting 10- and 20-year notes to maintain liquidity in the financial system. Market participants widely interpreted the Treasury’s intervention as a measure to relieve bond market stress and manage government financing costs. Since that initial announcement, the scale of those Treasury buybacks has tripled.
Cooling Labor Data Dampens Federal Reserve Rate Hike Odds
The monetary policy outlook affecting digital assets may shift toward a less restrictive stance following the release of downbeat U.S. labor market figures. Data published by the Bureau of Labor Statistics revealed that nonfarm payrolls increased by only 29,000 in September. The print fell sharply short of consensus projections, which had anticipated an addition of 80,000 jobs.
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The sluggish employment numbers reinforce evidence of an economic slowdown, offering the Federal Reserve additional flexibility to pause further rate increases. Prior to the September employment report, central bank officials had already signaled a willingness to take a measured approach. While Federal Open Market Committee (FOMC) participants had initially projected one further interest rate hike before the end of the year, several policymakers have advised caution.
New York Federal Reserve Bank President John Williams, who holds a vote on the FOMC this year, emphasized that central bankers face no pressure to expedite monetary tightening. In a public address last week, Williams stated: “With the policy action we took at our September meeting, there is no need for urgency,”
Following the weak employment data and dovish rhetoric, expectations for an imminent policy tightening have reversed rapidly. According to CME Group’s FedWatch Tool, the market-implied probability of a Federal Reserve rate increase in October plummeted to approximately 24%, a steep drop from the more than 75% probability priced in just one week prior.
Why This Matters
The dual impact of Treasury liquidity operations and declining interest rate hike expectations creates a uniquely favorable backdrop for digital assets. The tripling of Treasury bond buybacks signals an active effort by fiscal authorities to stabilize government debt markets, reinforcing the narrative that sovereign debt strains remain a persistent issue. At the same time, the sharp drop in rate hike probabilities for October reduces the opportunity cost of holding non-yielding assets like Bitcoin. If the U.S. labor market continues to soften, the Federal Reserve may be forced to prolong its pause, further validating the debasement trade among institutional and macro investors.
Frequently Asked Questions
What is the “debasement trade” driving Bitcoin’s price?
The debasement trade is an investment strategy centered on the belief that expansive government spending, ballooning fiscal deficits, and rising debt service costs will dilute the value of fiat currencies, such as the U.S. dollar. Investors turn to assets with fixed or resistant supplies, like Bitcoin, to protect purchasing power regardless of whether interest rates remain elevated.
Why did the odds of an October Fed rate hike fall sharply?
Market projections for an October rate increase fell from over 75% to roughly 24% on the CME FedWatch Tool after the Bureau of Labor Statistics reported that nonfarm payrolls expanded by only 29,000 jobs in September, falling far short of the 80,000 expected. The cooling labor market, paired with comments from New York Fed President John Williams indicating a lack of urgency, gave policymakers room to hold rates steady.
How did the U.S. Treasury’s actions impact bond markets and crypto?
The U.S. Treasury launched and subsequently tripled operations to buy back long-dated 10- and 20-year debt to support bond market liquidity and curb elevated borrowing costs. This intervention helped ease bond market friction and fueled investor flows into Bitcoin, which has surged more than 35% since mid-August.
