Bitcoin’s Rally Leans on Fears That Fiscal Strains Are Mounting

(Bloomberg) — Crypto’s true believers suddenly have a spring in their step again.

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Just days ago, Bitcoin still looked trapped in a market that had spent months grinding lower. Then, almost out of nowhere, it ripped toward $80,000, notching its best weekly gain in years and reviving the memes, the HODL chants and the conviction that momentum itself can pull crypto higher.

Rocket-ship emojis returned to X, bear-market obituaries resurfaced and Michael Saylor posted an AI-generated nightclub meme urging followers to “buy Bitcoin, hold 10 years, ignore the noise, survive the fears.”

The spark came partly from the bond market. Treasury Secretary Scott Bessent’s plan to at least double long-dated Treasury buybacks initially pulled yields lower and weakened the dollar while gold surged.

That combination revived the so-called debasement trade: the idea that mounting fiscal strains and easier financial conditions strengthen the case for scarce assets outside the government monetary system. For Bitcoin bulls, it was fresh macro ammunition arriving just as bearish positioning was stretched.

Even Ray Dalio, hardly a crypto evangelist, touted Bitcoin, citing an “unsustainable” debt spiral.

It’s “very nice to see some signs of life in the crypto market. And this rally feels different from other tenuous sparks over the past few months,” said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.

Crypto’s great hope has always been that momentum can create more momentum.

That is how the last boom fed on itself. Rising prices forced short sellers to cover, drew more money into spot ETFs, lifted crypto-linked stocks and digital-asset treasury companies, and gave some of those firms more capacity to raise money and buy still more Bitcoin. Higher prices then pulled sidelined investors back in, adding another layer of demand.

This past week offered the first real glimpse of that machinery trying to restart. A record wave of bearish bets was wiped out, spot-trading volumes jumped and Bitcoin ETFs drew fresh inflows. The policy backdrop helped too: President Donald Trump again pressed Congress to pass the Clarity Act, reinforcing an administration stance that has been broadly supportive of digital assets throughout this cycle.

“The regulatory risk premium is being repriced lower after Trump again urged Congress to pass crypto market structure legislation, which matters because clearer rules make it easier for institutions to underwrite exposure,” said Lacie Zhang, research analyst at Bitget Wallet.

The rise was so swift that Bitcoin broke above its 100- and 200-day moving averages, widely watched technical gauges, while its 14-day relative strength index pushed into what traders consider overbought territory.

Over at Standard Chartered, Geoffrey Kendrick sees scope for the rally to feed on itself. He pointed to record short liquidations in data going back to 2021 and more than $1 billion of weekly spot-Bitcoin ETF inflows, arguing that stronger prices could attract further flows and eventually draw leveraged traders back into the market.

“For the first time this year there is now a risk my end-year forecast (of USD100k) is too low,” he wrote in a note. “Once investors remember how quickly prices can accelerate to the topside, and we get past the 6 October date (12 months after the all-time high) an overshoot towards the all-time high (USD126k) before year-end may be possible.”

But one big week does not prove the flywheel is running again. The world’s largest cryptocurrency has merely clawed back to levels last seen in May and remains roughly 43% below its October record, still well short of establishing a new trading range.

Much of the initial surge came from forced short covering, many ETF investors are still underwater, and the digital-asset treasury companies that helped amplify earlier rallies remain diminished. Bitcoin has also staged rebounds this year that fizzled when fresh buyers failed to follow.

Establishing a new trading range will require something the squeeze alone cannot provide: sustained demand.

“There are some encouraging signs: as prices continued higher, we saw fresh buying come into the market rather than traders simply closing short positions,” said Tanay Ved, senior analyst at Talos.

–With assistance from David Pan and Sidhartha Shukla.

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