US Treasury Buybacks Revive ‘Debasement Trade,’ Boosting Case for Bitcoin, Ether and Zcash

Bitcoin, Ether and Zcash could benefit as rising US government debt and expanded buybacks of long-term Treasuries erode confidence in fiat currencies, Grayscale Research said.

In a report dated Aug. 26, Grayscale Research Head Zach Pandl said the US Treasury’s expansion of long-term bond buybacks may ease upward pressure on Treasury yields. It does not, however, address the underlying problem of structural fiscal deficits.

“The Treasury is addressing the symptom of rising bond yields without curing the disease of structural fiscal deficits,” Pandl wrote.

The Treasury recently announced an increase in long-term bond buybacks. By purchasing and retiring longer-dated Treasuries in the market, the plan reduces the supply burden after adjusting for risk and duration. Grayscale said the move could provide a modest economic stimulus.

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

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

“Uncontrolled growth in government debt could undermine confidence in fiat currencies and push investors to seek alternative stores of value,” Pandl wrote. “In digital assets, we believe Bitcoin, Ether and Zcash will be the main beneficiaries.”