Bitcoin climbed above $69,500 and Ethereum broke through $2,000 after the US Treasury announced it would double the size of planned buyback operations for longer-dated government debt.
The Treasury Department said on 19 August that the maximum size of its liquidity-support operations for 10- to 20-year and 20- to 30-year securities would increase from $2bn to at least $4bn per operation.
The new limit will apply from 9 September until 4 November.
The decision eased pressure in a bond market that had been hit by a sharp rise in borrowing costs. The yield on 30-year US Treasury debt fell to about 5.19%, down from Tuesday’s peak of 5.34% – its highest level since 2007. The 10-year yield also declined to 4.647%, while the difference between two-year and 30-year yields narrowed substantially.
Bitcoin rose from an intraday low of about $64,100 to above $69,000 before pulling back to around $68,000 as Treasury yields fell and investors moved back into riskier assets.
Ethereum reached $2,100, moving above $2,000 for the first time since June.
The sudden reversal caused heavy losses for traders who had bet that cryptocurrency prices would continue falling.
More than $1.2bn in cryptocurrency positions were liquidated within one hour, according to CoinGlass data, with Bitcoin and Ethereum accounting for most of the losses. Traders holding short positions – wagers that prices would decline – lost about $1.29bn during that period.
Across the previous 24 hours, more than 110,000 traders had been liquidated, with total losses exceeding $1.45bn. The largest individual liquidation was a $32m ETH-USD position on Bitget.
The Treasury said the larger buyback operations were designed to improve liquidity in longer-dated securities. Market participants have consistently offered the department significantly more debt than it has been prepared to repurchase.
“This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants,” the department said.
The move came after a significant repricing of longer-term Treasury debt. Investors have been seeking greater compensation for the risks of inflation, heavy government borrowing and holding bonds for several decades.
Rising corporate borrowing has added to the competition for investor capital, including debt linked to investment in artificial intelligence.
Those pressures have also affected Bitcoin and other assets considered more sensitive to changes in financial conditions. Higher long-term yields, particularly real yields after inflation, increase the cost of capital and make government debt more attractive as a relatively risk-free investment.
That can weigh on long-duration assets such as technology shares and reduce the amount of capital available for Bitcoin.
Wednesday’s decline in yields removed some of that pressure, helping Bitcoin recover above $66,000 before its further rise.
Andre Dragosch, head of research at Bitwise Europe, said the Treasury announcement suggested the “system is showing first signs of cracking” as policymakers respond to pressure in the longer-term government debt market.
The increase in buybacks does not amount to quantitative easing, however. Federal Reserve purchases of assets create reserves and expand the central bank’s balance sheet. Treasury buybacks are primarily intended to improve liquidity in securities that already exist and do not reduce the government’s overall debt burden.
Even so, the market’s reaction highlighted how closely Bitcoin and other risk assets are now responding to changes in long-term borrowing costs.
Matt Cole, chairman of Bitcoin treasury company Strive, said the pressure could eventually support a longer-term case for Bitcoin. His view is that rising government debt could push policymakers towards lower real interest rates, increased liquidity and currency depreciation.
Cole said the combination of federal debt and persistent deficits left policymakers with difficult choices: accept higher real rates and tighter financial conditions, or respond with measures that support liquidity and nominal economic growth.
He has argued for more than a decade that the US dollar is in structural decline. Cole said the Treasury’s latest action reinforced that belief, because it showed policymakers responding to stress in longer-duration debt.
He also said Bitcoin’s previous major rallies had coincided with periods of dollar weakness. However, Bitcoin has never operated through the kind of prolonged decline in the dollar that he believes may develop over the coming years.
If that scenario emerges, Cole said the next five to seven years could provide Bitcoin with a stronger macroeconomic tailwind than any previous cycle.
Bitcoin was up 6.11% over the previous 24 hours and remained the world’s largest cryptocurrency by market capitalisation.
