Treasury Buybacks Revive ‘Debasement Trade,’ Boosting Appeal of Bitcoin, Ether and Zcash

Rising US government debt and an expansion of long-dated Treasury buybacks could undermine confidence in fiat currencies, potentially benefiting digital assets including Bitcoin, Ether and Zcash, Grayscale said.

In a report published on Aug. 26, Grayscale Research Head Zach Pandl said the US Treasury’s expanded purchases of long-dated bonds may help relieve upward pressure on Treasury yields. But the move does not solve the underlying problem of structural fiscal deficits. “The Treasury is treating the symptom of rising bond yields without curing the disease of structural fiscal deficits,” he wrote.

The Treasury recently announced a larger long-dated bond buyback program. Under the plan, it would buy longer-maturity Treasuries in the market and retire them, reducing supply pressure after accounting for risk and duration. Grayscale said the measure could have a modest stimulative effect.

The broader concern is the pace of US debt growth. On the same day the Treasury announced the expanded buybacks, US public debt surpassed $40 trillion for the first time. Government debt has risen steadily since the global financial crisis, and more recently borrowing by the private sector to build artificial intelligence infrastructure has added to upward pressure on interest rates.

Grayscale said that backdrop could bring the so-called debasement trade back into focus. If government debt continues to rise unchecked, confidence in fiat currencies may weaken and investors could shift to alternative stores of value such as gold and digital assets.

Unchecked growth in government debt could erode trust in fiat currencies and drive investors toward alternatives, Pandl said. Among digital assets, he said Bitcoin, Ether and Zcash could be the main beneficiaries.