Why Did Bitcoin Explode Past $81K? 4 Macro Factors Behind the Rally

US Debt and Fiscal Policies

The US Treasury Department's announcement was one of the main reasons cited. The government will improve purchases of older US Treasuries by at least double, increasing buying of 10-30 year Treasuries from $2 billion to at least $4 billion per operation. This move aimed to improve liquidity and reduce pressure in the Treasury sector, where borrowing costs have risen exponentially.

The immediate reaction of risk assets, such as Bitcoin and gold, was a surge from $64,000 to $70,000, while Treasury yields initially dropped. However, this explanation is not enough to describe what happened. Longer-term Treasury yields quickly rebounded, while Bitcoin's price rose by another $10,000-$11,000.

Dollar Devaluation

According to analysts at Kobeissi Letter, this suggests that investors interpret the Treasury Department's intervention not only as a measure to support lower yields but also as evidence of growing pressure on the US's fiscal and monetary policies. The US federal debt has exceeded $40 trillion in recent years, while persistent deficits and massive refinancing needs have intensified uncertainty about how the government will manage this situation.

Devaluation of the dollar was the second macro piece of this puzzle. The Treasury Department's intervention pressured the dollar and revived calls from Wall Street for debasement: capital moving towards rare assets, such as Bitcoin and gold, when investors fear that the US's fiscal and monetary policies may gradually erode the fiat currency's purchasing power.

Liquidity Expectations

During this period, gold's price surpassed $4,600 per ounce, strengthening the argument that investors treat both gold and Bitcoin as alternatives to government-issued currency. Recently, Ray Dalio added a new dimension to this discussion, warning of a potential US debt crisis and advising investors to hold gold and a small portionof Bitcoin, as the dollar fell to a multi-month low.

Changes in liquidity expectations were another factor contributing to Bitcoin's price explosion. The Treasury Department's intervention changed investor expectations about market liquidity, leading to a surge in the price of risk assets like Bitcoin.