This article will help you understand how U.S. debt affects Bitcoin's price movements.

Author: Louis, ChainCatcher

Editor: Crypto Luo Xiaohui, ChainCatcher

In the first half of 2025, the U.S. Treasury market experienced severe volatility. Credit rating downgrades, auctions are cold, and fiscal deficits hit record highs… These events have not only reshaped the global asset allocation landscape, but also made the relationship between “U.S. bonds and Bitcoin” a new focus in the crypto market. Bitcoin, once a “speculative asset”, is now increasingly seen as “digital gold”. However, whether this attribute is true depends on whether it can show stability and hedging functions when global liquidity is tight. The impact of U.S. Treasuries, as an anchor of liquidity, and interest rate policies on Bitcoin is becoming more significant than ever.

In this issue of CC Looking at the World, we will simply and straightforwardly explain how US debt affects the price trend of Bitcoin.

What are US Treasuries?

U.S. Treasury bonds are debt instruments issued by the federal government to cover fiscal deficits and are known as the “safest asset in the world.” Since the U.S. dollar is the world’s reserve currency, U.S. Treasuries naturally have a wide range of international buyers, and their yields often serve as an important reference for global asset pricing. Changes in Treasury yields often reflect market expectations regarding macro factors such as inflation, interest rate policy, and government credit. As the basis for the risk-free rate, changes in U.S. Treasuries can affect capital costs, asset pricing, and even the flow of global funds through multiple channels.

What is ‘healthy US Treasuries’?

In terms of yields: The 10-year Treasury yield is often seen as the anchor of the global risk-free rate, and a reasonable yield level should reflect the balance between economic growth and inflation. In general, 2.5% to 3.5% is seen as a “healthy” range: a level that is sufficient to compensate for future inflation, but not enough to drive up financing costs and suppress investment and consumption. When yields are too low (e.g., <2%), it often means that the market expects an economic downturn or systemic risk; When yields remain above 4.5%, it usually indicates high inflationary pressures or questionable fiscal creditworthiness, which may trigger shocks in global capital markets. Therefore, maintaining a neutral interest rate level will help stabilize global investors’ confidence in the U.S. economy.

From the perspective of the yield curve: The shape of the yield curve (i.e., the relationship between short-term and long-term interest rates) is more revealing of the market’s expectations for future economic cycles. Under normal circumstances, long-term interest rates are higher than short-term interest rates, reflecting a moderate upward trend in future economic growth and inflation, which is a kind of “health curve”. When short-term interest rates are higher than long-term interest rates, the curve “inverts” is often seen as a precursor to a recession. Over the past few decades, every curve inversion has been followed by a slowdown or recession. If the 10-year rate is currently in a healthy range, but the curve is still inverted, it is a sign that the market is worried about short-term policy tightening and lacks confidence in long-term growth. Therefore, to assess the “health” of U.S. bonds, we should not only look at the level of interest rates, but also pay attention to whether their structural logic is reasonable.

What are the core changes in US Treasury bonds in 2025?

1 Debt Ceiling and Fiscal Deficit: At the beginning of 2025, the U.S. government reset the debt ceiling to $36.1 trillion and raised it again in May through the “Great Beauty Act.” Although the risk of default was avoided, the fiscal deficit further expanded, raising widespread questions among investors about the sustainability of the debt.

2 Credit Rating Downgrade: On May 16, Moody’s first downgraded the U.S. sovereign rating from “Aaa” to “Aa1”. This is the first time that the three major rating agencies have collectively downgraded the U.S. rating, marking a shift in market perception of the safety of U.S. Treasury bonds.

3 Weak Auction and Rising Yields: The results of U.S. Treasury auctions in May have repeatedly “cooled down,” with the market demanding higher interest rates to take on the bonds. This directly increases the government’s financing costs and squeezes the attractiveness of other assets.

4 Overseas capital reduction: By the end of March 2025, China’s holdings of U.S. Treasury bonds fell to $765.4 billion, hitting a multi-year low. Japan and the UK are also reducing their holdings. This may weaken the demand support for U.S. Treasury bonds, making the market more dependent on domestic capital.

5 The Game of Inflation and Monetary Policy: Although the U.S. GDP recorded -0.3% in the first quarter, expectations for an economic downturn have strengthened, yet high inflation has not been fundamentally resolved. Whether the Federal Reserve will cut interest rates has become the biggest suspense in the market over the next two months.

The impact of U.S. Treasury bonds on global liquidity and risk assets

U.S. Treasury bonds are the benchmark for the global risk-free interest rate, and changes in their yields directly affect the global cost of funds. Typically, as shown in the chart below, when the supply of U.S. bonds increases and yields rise, global capital is more inclined to flow into low-risk assets such as U.S. Treasuries, leading to tighter liquidity in other markets. Reduced liquidity has put pressure on high-risk assets (e.g., cryptocurrencies, technology stocks, start-ups, etc.) and weakened their performance. Conversely, if U.S. Treasury rates fall or the market expects the Fed to ease policy, it can release global liquidity and promote the recovery of the venture capital market. Therefore, U.S. bonds, which determine the trend of global liquidity, are also becoming an important indicator of the risk asset market.

The impact of US Treasury bonds on Bitcoin prices

Due to the high correlation between global liquidity and Bitcoin prices, the core lies in the market’s dynamic judgment of “cost of capital” and “risk appetite:”

Currently, if economic data shows strong employment combined with high inflation, the market will expect the Federal Reserve to maintain high interest rates to suppress inflation, leading to an increase in government bond yields and higher funding costs, ultimately creating an adverse situation of tightened liquidity, which is bearish for Bitcoin.

When interest rates are already high, market risk appetite declines, capital flows back to the bond market, further compressing the activity in the crypto market, which is bearish for Bitcoin. However, during periods of frequent risk events or rising skepticism regarding sovereign credit, Bitcoin may sometimes strengthen in the short term, supported by its positioning as “digital gold”.

On the contrary, if the market bets on an early interest rate cut, it means that future liquidity will be released, U.S. Treasury yields will decrease, financing costs will be lower, and risk assets as a whole will benefit, often leading to an increase in Bitcoin as well.

However, it is important to note that the uncertainty in the Federal Reserve’s policy statements often causes significant fluctuations in market sentiment, leading to potential unexpected reactions from Bitcoin in the short term. Therefore, the logic of Bitcoin’s price is not simply a one-way correlation with interest rates, but is nested within a complex chain of “changes in macro expectations → liquidity assessments → funding behavior.”