Key Takeaways
- Grayscale says government debt could support three cryptocurrencies.
- U.S. public debt exceeded $40 trillion for the first time.
- Treasury buybacks address bond pressure but not structural deficits.
Grayscale Connects Rising Debt to 3 Cryptos
Surging U.S. government debt could strengthen demand for BTC, ETH, and ZEC, according to an Aug. 26 analysis by Grayscale Head of Research Zach Pandl.
“Unchecked government debt growth undermines the credibility of fiat currencies and drives investors to seek out alternative stores of value like physical gold and certain cryptocurrencies,” he wrote, adding:
“In digital assets we think the so-called ‘debasement trade’ will primarily benefit bitcoin, ethereum, and zcash.”
Bitcoin presents the most established scarcity argument among the three assets through its programmed maximum supply of 21 million coins and lack of a government issuer. However, bitcoin’s store-of-value role remains debated due to its volatility, limited history compared with gold, custody risks, and sensitivity to broader financial conditions. Ethereum provides a decentralized settlement network, while Zcash combines a Bitcoin-like design with optional privacy features.
Treasury Expands Long-Term Bond Buybacks
Pressure in the government bond market prompted the Treasury to announce on Aug. 19 that it will buy more longer-dated securities. The department will at least double its maximum liquidity-support buybacks from $2 billion to $4 billion per operation, according to details of the expanded buyback program. The larger operations cover the 10- to 20-year and 20- to 30-year sectors and start Sept. 9.
Treasury buybacks allow the government to purchase older securities in the open market and retire them while issuing newer debt. The transactions can improve market liquidity and reduce the duration-adjusted supply held by investors, but they do not necessarily decrease the nominal amount of debt held by the public.
The latest buyback expansion coincided with the federal government crossing a historic debt threshold. The Daily Treasury Statement for Aug. 18 showed total public debt above $40 trillion, marking the first time outstanding federal obligations had exceeded that level.
The purchases may ease pressure in specific areas of the bond market without changing the spending and revenue imbalance that requires continued borrowing. Grayscale therefore views the operations as a response to rising yields rather than a solution to structural deficits.
Structural Deficits Sustain the Debasement Thesis
Persistent budget deficits indicate that federal debt will probably continue rising after the latest milestone. The Congressional Budget Office projected in February a $1.9 trillion federal deficit in fiscal 2026, increasing to $3.1 trillion by 2036.
Higher interest rates can accelerate fiscal pressure as the government refinances maturing securities and issues new debt to cover spending that exceeds revenue. Approximately $32.266 trillion was held by the public, while $7.782 trillion represented intragovernmental holdings, illustrating the scale of the government’s borrowing burden.
Heavy private-sector borrowing to finance artificial intelligence infrastructure is also competing with government debt for available capital, according to Grayscale. That combination can place upward pressure on interest rates, increase federal financing costs, and reinforce investor concerns about long-term fiscal stability.
The Treasury is scheduled to provide further information about future buyback sizes at its next quarterly refunding on Nov. 4. Meanwhile, the CBO projected in the same February baseline that debt held by the public would rise from 101% of gross domestic product in 2026 to 120% by 2036.
