The US debt machine is getting harder to stabilize – So where does Bitcoin fit in?
The US Treasury market, long viewed as the safest and most liquid in the world, is under mounting strain from record debt issuance, thinner buyer demand, and repeated liquidity shocks. Marketable Treasury debt has more than doubled since 2018, while foreign central banks and the Fed have reduced their holdings, leaving private investors and leveraged hedge funds to absorb more supply. Stress episodes in the repo market in 2019 and the Treasury selloff in March 2020 showed how quickly liquidity can vanish and pushed the Fed into repeated emergency support. A key vulnerability is the leveraged cash-futures basis trade, where hedge funds fund large Treasury positions through overnight repo borrowing. Regulators now see this as systemic. Elevated Treasury yields have also kept mortgage rates high and weakened the link between Fed policy cuts and long-term borrowing costs. Meanwhile, rising interest expenses are crowding out other federal spending, and weak auctions suggest the marginal buyer base is thinning. Stablecoin issuers, especially Tether, have become significant Treasury holders, tying crypto markets more closely to US debt conditions.
