US National Debt Tops $40 Trillion, Testing Bitcoin's Debasement Narrative

US federal debt has surpassed $40 trillion. The government deficit remains near 6% of GDP, and long-term borrowing costs are elevated. Yet Bitcoin is trading around $80,000, roughly 37% below its all-time high from the previous year.

This raises an awkward question for one of Bitcoin’s oldest macro arguments. If growing debt and weaker fiat currencies are supposed to boost the value of scarce assets, why has Bitcoin been falling for much of 2026?

Analysts at BloFin suggest the answer lies in how the debasement trade is evolving. Their latest report says the trade has moved into a “second phase,” where investors now watch government efforts to control borrowing costs as closely as money creation itself.

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If the debasement trade is back, why is Bitcoin falling as bond yields surge?

The answer is time horizon.

A global bond selloff and rising long-term yields can reflect growing concern over government debt and fiscal sustainability. Under the debasement thesis, that…

— BloFin Research (@BloFin_Academy) September 2, 2026

The Trade Broke Before It Came Back

The debasement trade is based on a simple concept. Large fiscal deficits eventually create pressure for looser monetary policy because governments cannot allow borrowing costs to rise indefinitely.

Investors then shift toward scarce assets like gold and Bitcoin.

That thesis weakened in early 2026. Bitcoin fell below $62,000, while gold and silver also dropped sharply from their peaks.

BloFin attributes much of that decline to the nomination of Kevin Warsh as Federal Reserve chair. Markets saw Warsh as less inclined to use aggressive balance-sheet expansion to counteract fiscal pressure.

The trade depends heavily on expectations. Investors still saw huge deficits, but the path toward easier monetary policy looked less certain.

September rate hike is a data call.

After Kevin Warsh’s Jackson Hole speech last Friday, more Fed officials have spoken this week.

The message across the Committee is increasingly clear:

the September decision will be driven almost entirely by the next jobs and inflation…

— BloFin Research (@BloFin_Academy) September 4, 2026

Then the Bond Market Started Making Noise

The situation changed in August. On August 18, the 30-year US Treasury yield hit its highest level since 2007.

The next day, the Treasury announced it would at least double the maximum size of liquidity-support buybacks in some 10-to-30-year bonds, from $2 billion to at least $4 billion per operation.

Bitcoin rose about 25% in August. Gold gained around 15%.

The timing matters. Expanding buybacks immediately after a surge in long-term yields suggested policymakers may be becoming less willing to tolerate higher borrowing costs.

Treasury Buybacks Are Not QE

The Treasury cannot create money. It must fund buybacks through cash, tax receipts, or new borrowing. That makes the mechanism very different from Federal Reserve quantitative easing.

Under QE, the Fed creates reserves and buys government debt. Treasury buybacks mostly alter the composition of government liabilities.

Nonetheless, BloFin argues that markets may care more about the direction of policy than the immediate liquidity effect. As the research states: “Treasury buybacks are not QE.”

If investors believe rising long-term yields will repeatedly trigger intervention, they may start pricing an informal limit on borrowing costs.

That is where financial repression enters the story.

The rising bond yields have been putting pressure on Bitcoin lately.

The 50-day SMA is sitting around 68,000, and the 200-day SMA near 69,500. Bitcoin's price is way above both of them right now, which is why the overall trend still looks constructive.

The 50-day is rising…

— BloFin Research (@BloFin_Academy) September 2, 2026

Bitcoin Still Has a Real-Yield Problem

The current data shows why the debasement trade remains incomplete.

US public debt is around 101% of GDP, while the 2026 deficit is projected near $1.9 trillion. M2 has also returned to growth.

At the same time, 10-year real Treasury yields remain around 2.4%.

That is a major obstacle for Bitcoin. Investors can still earn a strong inflation-adjusted return from government bonds without taking crypto risk.

It also helps explain why Bitcoin’s 2026 price action still resembles a traditional crypto cycle.

Bitcoin peaked roughly 534 days after the April 2024 halving, similar to the timing of the 2017 and 2021 cycle highs. It then fell by more than half before recovering.

The old four-year cycle still works.

The Next Test Is Whether Policy Starts Bending

BloFin’s thesis becomes much stronger if real yields start falling while fiscal pressure remains high.

That could happen if long-term borrowing costs keep creating stress and policy responses become larger. A more aggressive version would involve the Fed eventually stepping in.

History offers a clear precedent. From 1942 to 1951, the Fed capped long-term Treasury yields at 2.5%, helping the government finance wartime debt while inflation later pushed real bond returns deeply negative.

Bitcoin does not need that exact scenario to benefit. It needs investors to believe governments will increasingly protect the debt market from its own borrowing costs.

For now, Bitcoin is caught between a traditional crypto cycle that explains much of its 2026 weakness and a worsening fiscal backdrop that is starting to push scarce assets higher again.

The debasement trade has not failed. The bigger question is whether August marked the point when it became harder to ignore.