Why Did Bitcoin Skyrocket? Is National Debt Repurchase Considered QE?

On August 19, U.S. Treasury Secretary Scott Bessent made a move.

He doubled the single transaction limit for 10-year, 20-year, and 30-year Treasury bond repurchases from $20 billion to at least $40 billion. This came at a time when the long-end yields hit their highest levels in nearly two decades: the day before, the 30-year yield touched 5.33%, its highest level since 2007.

He gave his action a name, calling it the "Treasury's Twist Operation," paying homage to the famous twist operations by the Fed in the 1960s. He stated that the current yields are not in line with the "equilibrium" level.

Indeed, the curve twisted, but only for a day.

On the day of the announcement, the 30-year yield dropped to 5.19%, a 14 basis points decline. However, it then climbed back up, standing at 5.25% this Monday. The 10-year yield closed at 4.73% last Friday, nearing its highest point since he took office.

What really surged were other things: Bitcoin surged to nearly $80,000, triggering billions of dollars in short liquidations; gold approached a three-month high; XRP saw a 51% increase in a week.

Why Can the Treasury Lower Rates by Buying Its Own Debt?

Let's first clarify the mechanical principle behind this, which is not overly complex.

Treasury bond yields serve as the benchmark rate for the entire economy. It is not just the cost of government borrowing but also a pricing reference for mortgages, corporate loans, and many other debts. As the yield rises, both the government and American households face increased interest burdens—particularly concerning in the run-up to the midterm elections.

The Treasury's move to buy back its own debt in the open market effectively introduces an additional buyer out of thin air. With increased demand, bond prices rise; since bond prices and yields are inversely related, when prices rise, yields fall.

However, there is a key caveat: the Treasury is not the Fed and cannot create money out of thin air. The money used to buy the bonds either comes from existing cash reserves or must be borrowed. Borrowing usually involves issuing more short-term Treasury bills—so the repurchase is more of a "debt switch" than a "debt buyback": the overall amount remains the same, just shifting from long-term to short-term.

Analyst Angelo Manolatos from Wells Fargo estimates that to finance the expanded repurchase plan, the Treasury would need to issue an additional $160 billion in short-term Treasury bills each quarter.

This tactic itself is not new. Since the beginning of President Trump's second term in 2025, the Treasury has stuffed all new borrowing needs into short-term notes within one year—pushing up short-term rates but leaving the long end untouched. Interestingly, prior to becoming Treasury Secretary, Bessent criticized former Secretary Yellen for this exact point.

So why didn't it work?

Because none of the forces that pushed yields higher were touched by this operation.

Satori Insights founder Matt King put it most bluntly: "Every road to a sustained relief at the long end runs through things this administration doesn't want." He listed three roads: a smaller budget deficit, a stock market decline, reduced AI investment.

All three are blocked.

Debt is at a record high. The U.S. national debt this week has already exceeded $40 trillion by one measure. Bessent's promised deficit reduction plan looks bleak in Congress—this year's Republican-controlled Congress has no intention of net budget cuts, with the current fiscal year deficit forecast at $2.1 trillion.

Companies are also cashing in. The AI boom has led to a surge in corporate bond issuance. Earlier this month, Alphabet sold bonds with a maturity of up to 40 years.

Inflation has spiked. Trump's war with Iran has disrupted the energy market, causing oil prices to rise by about 30% since early July, with Brent crude reaching $93 a barrel.

The Federal Reserve itself is uncertain. Chairman Kevin Warsh's strategy has left investors puzzled, and the new chairman's debut at Jackson Hole has yet to be delivered.

What's even more awkward is that the market doesn't see anything that needs fixing here. Edward Yardeni, who coined the term "bond vigilantes," told Bloomberg TV about an hour before Bessent acted: "I think we've returned to normal interest rate levels, 4% to 5% is normal." The Treasury said this intervention was to support liquidity, while J.P. Morgan's rate strategy team wrote in its report last Thursday: "Market functioning has improved significantly this year."

Institutions like Goldman Sachs and BlackRock are more direct in their assessment: unless fiscal and inflation pressures truly ease, increasing long-end repurchases will not reverse the upward trend in long-term yields, and the yield curve will continue to steepen.

So why did Bitcoin rise?

Because the market read not "the problem is solved," but "they are really desperate."

The explanation from Sygnum's Chief Investment Officer Fabian Dori was comprehensive: "The Treasury has doubled down on long bond buybacks to soothe the bond market, provide liquidity at the long end of the curve... This is not printing money, as the mechanism is on the Treasury's balance sheet rather than the Fed's, but the signal is crucial: managing the US debt cost has become an active policy priority, reigniting the currency debasement narrative. Gold and silver, along with Bitcoin, have all risen, illustrating that capital is rotating into scarce, non-sovereign stores of value."

Citadel Securities' criticism was even harsher: This practice of suppressing long-term borrowing costs through buybacks falls under "financial repression" and may weaken the dollar, exacerbating inflation. Its assessment is that lowering the long-end yield will not alleviate fiscal and inflation pressures but will only shift the pressure to the foreign exchange market.

The forex market has indeed reacted first. Hedge funds had increased their bearish bets on the US dollar before Bessent announced the plan, leading to the dollar's largest daily drop in nearly three weeks. The options market's hedging demand against a dollar decline rose to the highest level since February. On Monday this week, the US Dollar Index was still hovering near multi-month lows.

Where is this money coming from, anyway?

This is a new variable that emerged this week.

CNBC cited two senior Treasury officials on Monday saying that the Treasury may tap into its cash account at the Fed—the Treasury General Account (TGA)—to fund the buybacks. As of August 20, the account balance stood at $935 billion.

The TGA is essentially the US federal government's checking account used to cover day-to-day expenses: Social Security checks, federal employee salaries, defense contracts, interest on national debt, and principal payments. This year, it has been intentionally beefed up, partly because the Treasury owes approximately $166 billion to importers—the Supreme Court ruled earlier this year that a large chunk of Trump's import tariffs was illegal.

The advantage of using the TGA is avoiding issuing new debt, but the downside is depleting the nation's cash reserves directly. In 2015, the Treasury set a rule: the account should hold at least five days of outflows or not less than $150 billion to prevent being locked out of the bond market.

Upon this news, the 10-year yield fell by as much as 4 basis points that day, to 4.69%.

During Monday's press conference, Bessent was asked about this—although the main topic of the press conference was actually sanctions on Iran. His response was that the Treasury will continue with the regular auction calendar announced in early August, including long-dated bond auctions; the expanded buybacks have not purchased any bonds yet, and the 10-year and 20-year buybacks are set to begin on September 10.

What Else Does He Want to Shake Up?

Bessent's yield curve management ambitions extend beyond government bonds.

He includes those massive tech companies that have borrowed heavily for AI as well. He says these investments will ultimately yield faster, non-inflationary economic growth, but for now, "it is creating short-term capital competition." Then he offered a piece of advice:

"If I were in the CFO's seat, I would consider issuing more of the so-called 'belly' debt."—meaning the five-year kind.

The U.S. Treasury Secretary publicly suggesting what maturity of debt corporate CFOs should issue is noteworthy in itself.

Another line leads further, to stablecoins. According to last year's "Genius Act," U.S.-issued stablecoins pegged to the dollar must be backed by specific assets, including Treasury bills maturing in 93 days or less. Bessent referenced a forecast: stablecoins could grow into a nearly $40 trillion market and wrote, "This could lower the government's borrowing costs."

Currently, the total market value of all stablecoins is around $300 billion, while the U.S. money market fund is close to $8 trillion. However, a commentary from the Brookings Institution's Hutchins Center pointed out where the leverage lies here: banks typically hold only 8 cents of Treasury bills for every $1 of assets, whereas $1 of stablecoin is typically backed by nearly 80 cents in Treasury bills.

This is the backdrop for Trump's meeting with crypto industry executives at the White House last week and his urging Congress to pass the "Clarity Act." Both Circle and Coinbase saw gains of over 20% last week.

The Rule He Broke

The Treasury has a decades-long tradition called "regular and predictable"—any changes to debt management methods must undergo thorough discussion internally and with market participants. Bessent himself reiterated this principle in a keynote speech last November.

This latest move comes just two weeks after the release of the plan's quarterly tentative calendar.

Lou Crandall, senior economist at Wrightson ICAP, captured the essence of this event most accurately in a report on Monday: "The decision to expand long-end repos itself may not be aggressive, but the timing and framing of the decision are certainly aggressive."

The cost could manifest in the most ironic way: if investors start worrying that auction sizes could change unexpectedly at any time, they will demand higher premiums to buy Treasury bonds—especially the longest-dated ones.

In other words, the very rule-breaking intended to lower long-end yields may itself push those yields up.

There is already talk in the market about whether we are witnessing a "Bessent Put," akin to the belief in Greenspan Put back in the day.

As for Trump, he denied last week that he ever directed Bessent to intervene in the bond market.

As for that yield curve, he did manage to bend it. It's just that what bent were the dollar, gold, and bitcoin, not quite what he had in mind.

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