Bitcoin Holds a 'Unique' Place in the Conversation as Treasury Yields Hit 24-Year Highs: Will Fed Choose

Stephen Coltman, Head of Macro at 21Shares, said the Federal Reserve may tolerate elevated inflation over the long run to maintain stability of government bond markets, putting dollar debasement and Bitcoin (CRYPTO: BTC) back in the spotlight.

The ‘Debasement Trade’ Bet

Coltman, in a note shared with Benzinga, highlighted a growing market tension: the Fed hikes rates while the Treasury simultaneously announces bond purchases to push yields lower.

On Thursday, the 10-year Treasury yield climbed to 5.34%, marking its highest level since 2002. Similarly, the returns on the 30-year Treasury note rose to a 24-year high of 5.63%.

When interest rates rise, the government pays more interest on its debt. To cover this, it borrows more, which expands the budget deficit. The U.S. federal budget deficit for fiscal year 2026 has already hit $1.97 trillion.

Coltman said that if yields continue to rise, the Fed would be “forced to choose” between its “inflation mandate” and its responsibility to maintain “orderly functioning” of the debt markets, with “historical precedent” suggesting the central bank would prioritize the latter.

“The debasement trade is therefore a bet that the central bank will end up tolerating higher inflation over the long term to accommodate structural growth in government spending and rising debt levels,” he added.