Bessent’s Regime Shift Clears the Way for Bitcoin to $1m

In June, I wrote that AI had made bitcoin redundant. Capital had deserted crypto for the AI revolution, the ETFs were bleeding, and the digital gold narrative was broken. The only thing that could bring bitcoin back to life, I wrote, was a new crisis that forced the authorities to return to the printing press.

Now the bond market has compelled Scott Bessent to open the floodgates.

Last week, the US 30-year yield rose to 5.34 per cent — its highest level in 19 years. The following day, the national debt passed $40tn. On 19 August, the Treasury secretary responded by doubling buybacks of older government securities with maturities of ten to 30 years, from $2bn to at least $4bn per operation between 9 September and 4 November.

Yields fell within minutes. By the following afternoon, the entire move had reversed. The market’s verdict was brutal: this was not liquidity management, but price management — and $4bn was a water pistol.

The next signal came on Monday. The Treasury opened the door to using part of the government’s nearly $1tn account (TGA) at the Federal Reserve to finance larger purchases. The message is clear: Washington will not tolerate long-term yields around 5 per cent.

At the same time, bitcoin has risen from around $64,000 to $80,000. US bitcoin ETFs have recorded five days of inflows totalling almost $2bn. One dependable bitcoin buyer has, however, been conspicuous by his absence: Michael Saylor. Instead, he has been buying back his own debt and building up his cash reserves.

This may be the canary in the coal mine.

DOGE of Despair

Elon Musk and DOGE made an honourable attempt to cut the deficit. It was doomed from the outset. Musk found waste, but not the political will required to cut the trillions that had to go. The money is tied up in welfare, healthcare, defence, interest payments and political promises that nobody dares touch.

Bessent’s 3-3-3 plan was supposed to deliver 3 per cent real growth, a deficit of 3 per cent of GDP and an additional three million barrels of oil equivalent in daily energy production. On energy, the US is delivering. On growth and the budget, the trajectory is heading in the wrong direction.

The deficit is close to 6 per cent of GDP. The Congressional Budget Office estimates that it will rise to 6.7 per cent by 2036, while debt held by the public increases from 101 to 120 per cent of GDP. Growth of around 2 per cent is not strong enough to outrun the debt. Washington spends roughly one-third more than it takes in. This is not a cyclical problem. It is the business model.

The Bond Market Revolts

The so-called bond vigilantes have now awakened. Bessent understands better than most what happens when the market discovers that the authorities are defending a price they cannot defend.

In 1992, he was sitting on the other side of the table. As a young hedge-fund manager working for George Soros in London, he helped execute the trade that forced Britain out of the European Exchange Rate Mechanism and “broke” the Bank of England. 

The difference is that Bessent is now on the government’s side of the trade.

His toolbox is limited. Short-seller James Chanos summed it up: $1tn in cash, $40tn in debt — and they are discussing buybacks.

Nassim Taleb compared the cure to treating pancreatic cancer with sedatives and yoga. Even Bessent’s former mentor, investing legend Stanley Druckenmiller, has delivered a stinging rebuke of his former pupil’s market intervention. Let the market speak, he says.

The Subprime Superpower

Bessent is not listening. As far as possible, the US will finance itself at the short end of the curve.

Short-term debt is easy to sell. Money-market funds, banks, stablecoin issuers and other liquidity managers have a strong appetite for safe dollar assets with short maturities. But like some unfortunate soul who has ended up on Norway's debt-advice programme The Luxury Trap, it becomes an endless scramble for new credit cards.

The larger the share financed at the short end, the more vulnerable the government becomes to any change in the policy rate, market liquidity or investor confidence.

The opportunity to lock in vast quantities of long-term debt at the pandemic’s near-zero interest rates was squandered. Washington chose not to secure cheap funding for decades, or even centuries, when it had the chance.

Now the superpower is to be refinanced from week to week.

Jackson Hole

The hope — and probably the active nudge from Bessent, who has breakfast with Warsh every week — is that the Federal Reserve follows suit.

The Fed has not cut rates since December 2025. Its target range remains at 3.50–3.75 per cent. The Iran war contributed to a renewed acceleration in inflation earlier this year, although price growth has eased in recent months. In July, headline inflation stood at 3.4 per cent and core inflation at 2.5 per cent.

That leaves Kevin Warsh with a genuine dilemma. He took office with a reputation as an inflation hawk and ambitions to reduce the size of the Fed’s balance sheet and its influence over markets. But the bond market, Trump and Bessent are pulling him in the opposite direction.

We will get an indication on Friday, when Warsh speaks at Jackson Hole — the symposium where central bankers have previously signalled shifts in the monetary regime, from Bernanke’s prelude to QE2 in 2010 to Powell’s monetary-policy pivot in 2024.

Friday’s speech could become another such moment.

Warsh does not need to announce an immediate rate cut. It would be enough for him to signal that he is prepared to look through energy-driven inflation, maintain ample reserves or use the balance sheet if the bond market becomes dysfunctional.

The printing press does not have to be switched on. The market only needs to hear that the dust has been blown off it.

Kicking the Can Down the Road

Trump will leave the White House in January 2029. Neither he, the Republicans facing the midterm elections nor any potential successor has a political incentive to impose the lower standard of living that a genuine debt cure would require.

Trump merely needs to kick the can far enough down the road. If nothing blows up before January 2029, the bill can be handed to President Alexandria Ocasio-Cortez or Gavin Newsom — or to his own Octavian and Mark Antony, JD Vance and Marco Rubio.

It will be their dollar. Their problem.

But 2029 is still a long way off. There is no guarantee that the bond market will allow itself to remain sedated until then.

It caused a stir on Friday when Trump answered a question about rising yields by saying that “the military is our ultimate intervention”.

It has proved difficult enough to bomb Iran into peace. Is Trump going to bomb countries that do not buy US Treasuries?

King of Deb

Trump also has experience of debt restructuring.

At the beginning of 1990, he and his companies owed around $4bn to more than 70 banks. When the cash flow dried up, the banks were pressured into changing the terms of the loans and keeping the empire alive, because a collapse would also have inflicted enormous losses on the creditors.

That does not mean Trump intends to default on US government debt. But the experience taught him something that central bankers and officials generally prefer not to acknowledge:

When the debtor is large enough, the debt is also the creditor’s problem.

Trump is also an agent of chaos. The American real economy is healthier and more innovative than the government’s balance sheet. AI, energy and the digital sector allow him to believe that the US can grow its way through a storm in the bond market.

He may therefore be willing to take the gamble.

Bitcoin’s Resurrection

That is what makes bitcoin relevant again. Not as technology. Not as a means of payment. But as a global smoke alarm for monetary debasement.

The present situation also revives an idea that has lain dormant since the first wave of crypto euphoria surrounding Trump: could the US build a large bitcoin reserve, engineer a dramatic repricing and use the gains to strengthen the government’s balance sheet?

Trump established a strategic bitcoin reserve in March 2025. It consists of around 200,000 bitcoin seized by the government. The Treasury and Commerce departments were authorised to develop budget-neutral strategies for buying more, but nothing came of it.

The idea that the reserve could “pay down the national debt” is alchemy. Even 200,000 bitcoin valued at $1m each would be worth only $200bn. That represents just half of 1 per cent of US debt.

The bitcoin reserve is therefore no solution to the debt problem. But it could become a price driver. If the world’s largest debtor also becomes a major buyer of a reserve asset with an absolute cap of 21m coins, other governments, funds and companies will have to ask whether they dare remain on the sidelines.

One million dollars per bitcoin sounds absurd.

That is the point.

We are heading into Absurdistan, where the government buys its own debt, finances itself at the short end and pressures the central bank to keep the party going.

Investors must now do what they do in the cinema: willingly suspend their disbelief.

If Washington chooses to rescue the bond market by debasing the dollar, bitcoin at $1m may be the price of the regime shift.