Bitcoin Surges 20% Amid US Debt Crisis and Rising Bond Yields

Bitcoin (BTC) has surged to new heights amidst a fragile global macroeconomic backdrop. Bond yields are rising in the US and Japan, global growth is slowing, and consumer confidence in the US is at historic lows. Paradoxically, these macro conditions, which once threatened Bitcoin’s price, are now fueling its rise. This shift indicates a broader transformation in how investors interpret risk and seek refuge.

The US debt crisis and ballooning Treasury yields are at the center of this realignment. When US bond yields rise, the cost of servicing the national debt increases sharply. The US debt has surpassed $36.8 trillion, and interest payments are expected to total $952 billion in 2025. Lowering yields was a priority for the US President, but achieving this through lowering interest rates or quantitative easing (QE) is challenging. The Federal Reserve is cautious about reigniting inflation, especially amid ongoing economic tensions. Political meddling with the economy could erode investor confidence and produce the opposite effect.

Investors are traditionally turning to government bonds as a safe haven during instability. However, the recent loss of the US government’s last AAA credit rating suggests that investors are turning away from Treasurys, indicating that the problems in the US economy are too large to ignore. The yield on the US 30-year bond hit 5.15% on May 22, its highest since October 2023. The 10-year yield stands at 4.48%, the 5-year yield at 4%, and the 2-year yield at 3.92%. The US 5-Year to 30-Year bond spread has steepened to 1.00%, suggesting markets are pricing in stronger growth, persistent inflation, and a “higher for longer” rate environment.

Japan, the largest foreign holder of US Treasurys, is also facing challenges. Japanese investors hold $1.13 trillion in US government debt. The Bank of Japan started raising interest rates from -0.1% to 0.5% in March 2024. The Japanese 30-year bond yield has surged by 100 basis points, reaching an all-time high of 3.1%. Prime Minister Shigeru Ishiba warned that the country’s debt-strapped government’s position was “worse than Greece.” The surge in long-dated Japanese bonds wasn’t matched by shorter maturities, suggesting a strategic shift by large Japanese pension and insurance funds as the Bank of Japan “normalizes” interest rates.

As the US continues down the debt spiral, and Japan might be starting its own, the global economy is nowhere near recovery, and that could be a good sign for Bitcoin. Traditionally, rising bond yields would drag down risk assets. Yet stocks and Bitcoin continue climbing. This divergence suggests investors may be moving away from the traditional playbook. When confidence in the system erodes, assets outside it, like stocks and Bitcoin, begin to shine, even if they are considered risk-on.

Institutional investors are increasingly choosing Bitcoin over US stocks. According to the analyst's forecast, net 38% of institutional investors were underweight US equities in early May. Meanwhile, total inflows into spot Bitcoin ETFs continue to grow, with assets under management now exceeding $104 billion, an all-time high. This surge suggests that institutional capital is beginning to recognize Bitcoin not just as a high-performing asset, but as a politically neutral store of value, akin to gold. In an era of mounting instability in fiat debt-based economies, Bitcoin is emerging as a credible alternative, offering a monetary system grounded in predictability and decentralization. With a market cap still well below gold’s $22 trillion or even the $5.5 trillion in base dollars (not including debt), Bitcoin remains significantly undervalued.

Interestingly, the current situation supports both of Bitcoin’s once-contradictory narratives: it is acting as a high-yield risk asset and a safe haven store of value. In a world where old frameworks are failing, Bitcoin's dual role may no longer be an anomaly, but a sign of what’s to come.