Breaking: Bitcoin Soars. The US May Unleash Nearly $1 Trillion in Liquidity

Scott Bessent may have significantly more influence over the US bond market than the markets expected. Could the announced intervention of $4 billion be just the tip of the iceberg? According to sources from the US Treasury, cited by major global financial channels, the Treasury is considering using part of the approximately $950 billion accumulated in the Treasury General Account to repurchase long-term US bonds. While this is not QE from the Covid-19 era, the mechanism could temporarily increase liquidity in the system.

It could also limit the supply of long-term debt and drive yields down. The market is reacting: the dollar has weakened, while gold and Bitcoin have gained significantly. Importantly, the United States itself may be able to "hedge" against a weakening dollar... by accumulating "anti-dollar" assets. Hence, investors, following Donald Trump's recent comments, have reason to expect an increase in the strategic reserve of BTC above the currently held nearly 330,000 units of the cryptocurrency.

Key Facts

• The Treasury General Account currently holds about $1 trillion, compared to roughly $550 - $600 billion previously maintained.
• The Treasury Department has doubled the scale of some bond repurchase operations from $2 billion to at least $4 billion, but it could go much further.
• The market has begun to view Bessent's actions as an attempt to limit long-term yields, which supports gold and Bitcoin while weighing on the dollar.

How can TGA inject liquidity without Fed assistance?

The Treasury General Account is essentially the current account of the US government held at the Federal Reserve. When the Treasury accumulates money in it, part of the dollar liquidity is pulled out of the private sector. When the account is emptied through spending or potentially repurchasing bonds, the money returns to banks and investors. A decrease in the TGA balance can thus increase bank reserves and improve financial liquidity, even though the Fed does not print a single new dollar.

The second mechanism operates through the bond market itself. By purchasing old, less liquid bonds from the long end of the curve, the Treasury reduces their quantity in the hands of investors, increases demand, and tries to lower yields. Already after the first announcement, 10-year yields fell to around 4.6%, although the effect quickly began to fade.

But there’s a catch. If Bessent later wants to rebuild the TGA to the current $950 billion, the Treasury will have to raise cash again through debt issuance. Some of the earlier liquidity impulse will then be reversed. This is more of a powerful tactical buffer than a "free $1 trillion."

The dollar may pay for lower yields

The most direct loser so far has been the dollar. The American currency has found itself near multi-month lows against a basket of G10 currencies. Investors have begun to wonder whether Washington is trying to administratively limit the cost of financing its massive public debt. The US debt has already exceeded $40 trillion. The mechanism itself is quite brutal. If long-term yields cannot rise freely despite high inflation, large deficits, and a huge supply of bonds, part of the adjustment may shift to the exchange rate.

Does this mean the dollar must enter a prolonged bear market? Not necessarily, but the market has a new reason to seek protection outside the American currency. Hence the surge in assets associated with protection against currency devaluation. Bitcoin rose nearly 23% against the dollar last week, while gold gained about 5%. Both assets opened the new week with gains. On Monday, the precious metal was above $4,600 per ounce, reaching its highest levels in over three months, while the largest cryptocurrency surged above $78,000.

Stocks, gold, and Bitcoin are playing in the same league

For the stock market, a drop in long-term yields would initially be good news. A lower discount rate raises the present value of future profits, which is why technology, growth companies, and businesses heavily reliant on financing may react the most. Additionally, the outflow of money from the TGA increases liquidity. This is a mix that Wall Street typically likes.

Gold has an even simpler setup. A weaker dollar increases its attractiveness outside the US, and lower real yields reduce the opportunity cost of holding an asset that does not pay interest. There is also concern that fiscal policy is beginning to force actions to keep the cost of debt under control. For gold, the narrative of financial repression is a significant fuel.

Bitcoin finds itself somewhere between gold and the Nasdaq. It benefits from greater liquidity and a weaker dollar, but remains a risky asset. If the Treasury operation indeed lowers yields, BTC gradually emerging from a bear market (not officially over yet) could receive a very important boost. However, if investors view it as evidence of fiscal problems, and the bond market rebels even more, yields could shoot up again. Then stocks and Bitcoin would take collateral damage. Nearly $1 trillion in the TGA gives Bessent a powerful weapon, but does not provide absolute control over the market.