Bessent, Bonds, and Bitcoin

Intentionally or not, the U.S. government just proved two of the strongest arguments for bitcoin. Markets took note. 

There are many reasons bitcoin and crypto are rallying.

Among them: Last week, the SEC proposed “Regulation Crypto Assets,” rules that would create a pathway for new crypto projects to emerge. The White House hosted a meeting of crypto executives and said positive things about the industry. In the ensuing flash rally, short sellers got caught offsides and were forced to cover.

But the most important catalyst was U.S. Treasury Secretary Scott Bessent, who ignited last week’s rally and created conditions that put bitcoin on a path to a new all-time high.

Let’s review, because it was the most important week for bitcoin in the past year.

Step 1: The Long Bond Intervention

The first thing Bessent did was announce plans to intervene in the long end of the Treasury market.

Last Wednesday, the Secretary announced that the Treasury Department would double the amount of long-dated bonds it purchases in periodic buybacks, from $2 billion to $4 billion. The announcement came as yields on the 30-year Treasury hit their highest levels since 2007.

On the one hand, the announcement was minor. Treasury issues trillions of dollars of debt every year; a few billion dollars of buybacks is a drop in the bucket.

But the size of the purchase wasn’t the important thing. It was the signal. While Bessent positioned it as a “liquidity measure,” markets read it as an effort to artificially suppress long-term interest rates. It’s textbook financial repression. And there is nothing bitcoin likes more than a little financial repression.

When governments intervene to push down long-term interest rates, it punishes savers, who earn less on safe assets while inflation erodes their purchasing power. That often drives them to scarce assets like gold and bitcoin. Not surprisingly, both rallied on the news.

Step 2: Doubling Down

At first, Bessent’s efforts worked. For a brief moment, the yield on the 30-year Treasury dipped from 5.29% to 5.20%, while the benchmark 10-year Treasury fell from 4.70% to 4.65%.

But it didn’t last. Both quickly reversed course and moved back toward previous highs. It turns out that $40 trillion of debt outweighs a $4 billion buyback.

Rather than backing down, Bessent went on CNBC and declared that the buybacks could be larger than $4 billion. And when that failed to calm the bond market, reports emerged that Treasury could use the nearly $1 trillion Treasury General Account to fund larger buybacks.

In other words: In roughly 48 hours, the conversation went from a $2 billion liquidity operation to the possibility of using $1 trillion to backstop long bonds.

That stunned the investment community.

Ray Dalio warned that a debt crisis was nigh and investors should own gold and bitcoin. Stanley Druckenmiller took to the op-ed pages of the Wall Street Journal and called the move “price management” and “a mistake far larger than $4 billion suggests.” Mohamed El-Erian compared the experiment to Japan’s disastrous experience with yield-curve control.

The conversation thrust the $40 trillion national debt into the limelight and put debasement on the tongue of every economist in the world. Needless to say, bitcoin lapped this up.

Step 3: Weaponizing the Dollar-Based Financial System

If that wasn’t enough, Bessent subsequently hosted a press conference on Monday to launch what he called an “economic onslaught” against Iran’s financial connections around the globe.

Calling it “the financial equivalent of D-Day,” Bessent said the administration would move to cut Iran off from the global economy. This would include sanctions on companies and countries that do business with Iran. “Any entity that facilitates money laundering on behalf of Iran will be removed from the U.S. dollar system,” he said. “The clock just started ticking.”

In so doing, he made explicit something that has always been implicit: Access to the dollar-based financial system is a tool of American power. More importantly, he made it clear that we are willing to wield it.

The move had echoes of the 2022 decision to freeze Russia’s foreign-exchange reserves following the invasion of Ukraine, an event that helped set the stage for the massive gold and bitcoin rallies that followed.

When countries weaponize their payment systems, they inevitably cast a spotlight on neutral alternatives. Bitcoin is the only scarce, globally transferable monetary asset that can be directly held—and doesn’t depend on the banking or custody system of any single political entity. (Gold is a great store of value but is heavy, hard to move, hard to divide, and therefore challenging for transactions.)

The more the global financial system becomes a tool of geopolitical power, the more valuable a neutral financial network becomes.

A Powerful Setup

In one short week, Bessent used the full force of the U.S. government to highlight two of the strongest arguments for bitcoin. (Intentionally or not.)

On the one hand, he implemented a soft form of yield-curve control that will send investors running for hard assets. On the other hand, he reminded the world of the increasing value of a neutral monetary settlement layer.

All this is happening at exactly the moment when governments keep printing money, access to bitcoin keeps improving, and the world’s largest wealth managers are putting bitcoin into model portfolios.

That’s a pretty powerful setup.

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