The $40 Trillion Reason Bitcoin Woke Up
Here’s what caused the rally (and what didn’t) — and where Bitcoin faces its next test.
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For nearly 10 weeks, Bitcoin went nowhere. Then the Treasury Department doubled the maximum size of its long-term debt buybacks from $2 billion to $4 billion per operation. Bond yields fell, and Bitcoin jumped nearly 8%.
This wasn’t quantitative easing. Treasury is replacing older debt with newly issued debt. The Federal Reserve isn’t creating reserves to buy securities, and its balance sheet isn’t expanding. But traders didn’t care about any of that. They saw federal debt crossing $40 trillion and Washington taking another step to keep the Treasury market functioning. Call it debt management if you want. Bitcoin’s lizard brain heard the part about $40 trillion.
Washington added a second reason to buy. President Trump hosted crypto executives at the White House and pushed Congress to pass the CLARITY Act, which would draw clearer lines between SEC and CFTC oversight. The bill still faces a nearly impossible vote in the Senate.
As of Aug. 20, Polymarket gives it only a 20% chance of being signed into law by the end of 2026. Hardly a bullish prediction.
Then leverage turned the rally into a stampede. Bloomberg, citing CoinGlass, reported that $2.7 billion in bearish crypto positions were liquidated. It was the largest short liquidation wave on record since 2021. More than $1 billion in Bitcoin shorts disappeared in about an hour as traders were forced to buy back positions in a rising market.
With Bitcoin trading at $72,625, I think it has room to reach $75,550 before meaningful selling materializes. But Bitcoin has also run from roughly $63,000 to $73,000 in a straight line. If you’re chasing it and you’re not a scalper, well, expect some heartburn. Or, at a minimum, know where your stop is in advance.
The real test will come during the next pause or pullback.
I want to see how Bitcoin behaves as it slides back toward its 8-day and 21-day exponential moving averages (EMAs), or whether it trades sideways long enough for those averages to catch up. If this rally has further to go, both averages should support price. A few days of churn followed by another push higher would be ideal. If Bitcoin falls straight through them, the rally will look more like a short squeeze that ran out of forced buyers.
The last thing to keep in mind is that rate cuts didn’t cause this rally. The Fed has held rates at 3.50% to 3.75%, and at the last meeting, all three dissenters wanted a hike. This move in crypto was a fiscal trade, a Washington trade, and then a short squeeze. The money printer never turned on. Bitcoin rallied in part because too many folks were leaning short in the market, and because investors increasingly doubt that Washington can ever turn the debt machine off.
At the time of publication, Byrne was long (IBIT) and BTC.
