The $40 Trillion Reason Bitcoin Woke Up

For nearly 10 weeks, Bitcoin went nowhere. Then the Treasury Department doubled the maximum size of its long-term debt buybacks from $2 billion to $4 billion per operation. Bond yields fell, and Bitcoin jumped nearly 8%.

This wasn’t quantitative easing. Treasury is replacing older debt with newly issued debt. The Federal Reserve isn’t creating reserves to buy securities, and its balance sheet isn’t expanding. But traders didn’t care about any of that. They saw federal debt crossing $40 trillion and Washington taking another step to keep the Treasury market functioning. Call it debt management if you want. Bitcoin’s lizard brain heard the part about $40 trillion.

Washington added a second reason to buy. President Trump hosted crypto executives at the White House and pushed Congress to pass the CLARITY Act, which would draw clearer lines between SEC and CFTC oversight. The bill still faces a nearly impossible vote in the Senate.

As of Aug. 20, Polymarket gives it only a 20% chance of being signed into law by the end of 2026. Hardly a bullish prediction.

Then leverage turned the rally into a stampede. Bloomberg, citing CoinGlass, reported that $2.7 billion in bearish crypto positions were liquidated. It was the largest short liquidation wave on record since 2021. More than $1 billion in Bitcoin shorts disappeared in about an hour as traders were forced to buy back positions in a rising market.