Bitcoin’s recovery from its July low coincided with the announcement of expanded US Treasury long-dated bond buybacks, in response to rising long yields. The intervention was small in dollar terms and modest in scale relative to the $32 trillion Treasury market, but it revealed how sensitive Washington has become to its own borrowing costs – even without acute market dysfunction. For Bitcoin, it also serves as a reminder of its role as a hedge against sovereign debt risks and the government and central bank policy responses those risks provoke.

Price action has surprised traditional four-year cycle theorists. Bitcoin may have bottomed after the shortest and shallowest of its four major cycle corrections. But this will not be confirmed until the price breaks the lower-high structure with a sustained move above $82,814, then completes a pullback that holds a higher low.

Bitcoin peaked on 6 October 2025 at just above $126,000 before falling to around $57,800 on 1 July, representing a drawdown of around 54% over nearly nine months. This continues a pattern of progressively shallower cycle corrections – but this time the price correction is paired with the first material contraction in time. In previous major corrections, Bitcoin declined by approximately 86% over 13 months in 2013–15; 84% over 12 months in 2017–18; and 77% over 12 months in 2021–22.

Under a prominent Elliott Wave count, Bitcoin’s major corrections occur at progressively smaller scales within a larger uptrend, so they would be expected to become shallower, shorter, or both. A July low would fit that pattern, but to strengthen the case that the cycle low is in, Bitcoin needs to advance beyond $82,814 and break the lower-high macro structure, followed by a corrective pullback that holds a higher low, preferably with renewed volume and a bullish monthly MACD crossover. A sustained break above that level would invalidate a principal bearish Elliott Wave count. Until then, the cycle low is plausible but unconfirmed. While Elliott Wave counts are inherently subject to reinterpretation, they provide a useful framework for assessing scenario-based price paths against explicit confirmation and invalidation levels.

Political support provides another potential catalyst for crypto adoption. In the US, the White House has pushed for Congress to pass the Clarity Act, a crypto market structure bill that aims to reduce regulatory risk and legal uncertainty and clarify jurisdictional oversight. In the UK, Reform provides the clearest example of a political party explicitly advocating pro-crypto policies. Reform received £72 million in September in equal-sized donations from crypto billionaires Ben Delo and Christopher Harborne, underpinning crypto as one of Reform’s largest funding sources. Reform party leader Nigel Farage already has a pro-crypto policy stance that includes a proposed Bank of England Bitcoin reserve and a 10% capital gains tax rate for digital assets. The donations have intensified political scrutiny of Reform’s financial backing, against a backdrop of separate investigations. Nevertheless, they demonstrate substantial financial support for a UK political party advocating greater crypto adoption. Reform’s national electoral popularity keeps open the prospect of a future UK government pivoting decisively to a pro-crypto policy stance. For Bitcoin, that creates a potential longer-term UK adoption catalyst.

Bitcoin surged almost 25% in the three days following the US Treasury’s 19 August announcement that it would at least double the maximum size of its long-dated Treasury buyback operations – from $2 billion to at least $4 billion per operation – across the 10-to-30-year maturity range. The crypto rally coincided with falling yields, a weaker dollar, and a large short squeeze. The US Treasury presented the buybacks as liquidity support for long-dated bonds, but their practical purpose was to ease pressure on long yields, which are weighing on the government’s debt-servicing costs. The 30-year Treasury yield had climbed to around 5.3% following Federal Reserve Chair Kevin Warsh’s July press conference, where he left markets uncertain about how forcefully the Fed would respond to persistent inflation. Longstanding concerns over heavy Treasury issuance and fiscal credibility added to the bond sell-off.

Warsh repaired some inflation credibility in his late August Jackson Hole speech. He reaffirmed the Fed’s willingness to raise interest rates to bring inflation back within the Fed’s 2% goal, which it has exceeded for more than five years. This produced a short-lived flattening of the yield curve, but global pressures overhanging long-dated sovereign debt linger. By early September, Japan’s 10-year yield reached 3% for the first time since 1996; the UK’s 30-year gilt hit 5.89%, its highest since 1998; Germany’s 10-year yield rose to around 3.4%, its highest since 2011; and France’s traded around 4.25%, near its highest since 2008. The synchronised bond sell-off was underpinned by self-reinforcing dynamics: higher long yields increase government refinancing costs, which increases issuance and deepens the fiscal imbalance over time. In the US, the gross federal debt passed $40 trillion in August.

On 10 September, the US Treasury purchased $5.19 billion of long-dated bonds under the $6 billion maximum for that operation. The amount underwhelmed bond investors and remains tiny relative to the $32 trillion Treasury market. The 10-year nudged close to 5% and the 30-year pushed above 5.3%, as markets tested the boundaries and oil surged back to $105 per barrel, stoking inflation concerns. A 25-basis-point rate increase by the Fed in September or October might be symbolically hawkish, but would not resolve the underlying fiscal imbalance.

For Bitcoin, government responses to worsening sovereign debt risks will matter more than rising long yields in isolation. One potential US response is to finance more of the deficit with short-dated Treasury bills, limiting the supply of new long-dated bonds that markets must absorb. To support this, the US Treasury is cultivating the market for regulated dollar stablecoins, which must be backed by short-dated, safe dollar assets. This creates a structural demand for short-dated Treasury bills, potentially enabling the Treasury to finance more of the deficit at the short end. This funding strategy would allow the Treasury to buy back long-dated debt and refinance with short-dated Treasury bills when the Fed eventually cuts interest rates. However, it would not resolve the fiscal imbalance. Over time, a shorter maturity profile would increase refinancing risk and make debt-servicing costs more dependent on short-term rates, which the Fed strongly influences. It could therefore backfire if inflation keeps those rates high.

This is where Bitcoin could operate as a hedge. That increased dependence on Fed policy could intensify pressure on the Fed to suppress rates or expand liquidity, increasing the risk of currency debasement, fiscal dominance, and financial repression. Currency debasement is the erosion of money’s purchasing power; fiscal dominance is when inflation control is subordinated to government financing needs; and financial repression reduces the real value of public debt and effectively transfers wealth from savers to the state by artificially keeping interest rates below inflation. These outcomes could significantly strengthen demand for Bitcoin’s fixed supply as a hedge against lost purchasing power, supporting its long-term monetary-scarcity case. Bitcoin has nevertheless traded alongside equities and suffered sharp losses during monetary tightening, limiting its reliability as a near-term hedge. The longer-term hedge case depends on whether fiscal pressure ultimately produces sustained monetary easing or financial repression.