U.S. Treasury bonds are about to surpass $40 trillion. Why might Bitcoin become the biggest winner?

As of the end of 2025, the total US federal government debt has approached $38.4 trillion, equivalent to about $28.5 thousand per U.S. household, and is rushing toward the $40 trillion mark at a daily rate of $5 billion to $7 billion. Behind this staggering figure is an astonishing interest expense exceeding $1.2 trillion annually.

Traditionally, the ever-expanding national debt has been viewed as a pressure on the long-term value of the dollar, reinforcing Bitcoin’s narrative as “digital gold” and an inflation hedge. However, a disruptive turn is occurring in this debt story: mainstream stablecoin issuers, led by USDT and USDC, are transforming from external observers into key internal buyers of government bonds by holding large amounts of short-term US Treasuries. This role shift has created an unprecedented deep linkage between the cryptocurrency market and the core of the US financial system—the treasury market and global dollar liquidity—making Bitcoin’s future susceptible to both “hard currency” faith and short-term liquidity tides.

The US debt Ponzi is nearing its limit: a household’s $28.5K debt

When numbers grow large enough, they often lose touch with reality. $38.4 trillion is the total public debt recorded on the U.S. Treasury’s “One Cent Debt” website as of December 29, 2025. This astronomical figure is expanding at about $1.8 trillion per year, with a daily increase of $5 billion to $7 billion. At this pace, breaking the $40 trillion threshold is no longer a distant prophecy but a near-term reality, possibly arriving as soon as summer 2026.

To bring this number down to a “human scale,” an intuitive method is to spread it across every American household. According to data from the St. Louis Fed, this debt implies each household is effectively burdened with about $28.5 thousand in federal debt. That exceeds many family’s mortgage down payments, instantly bringing the vast national fiscal issue to the dining table. Even more alarming than the debt stock is its interest expense. In fiscal year 2025, the net interest cost on US debt hit a record $1.216 trillion. This means the government’s annual interest payments already surpass the GDP of all but a few countries. When the interest bill itself is measured in trillions, any market fluctuation in treasury yields becomes hyper-sensitive.

For the crypto market, especially Bitcoin, the US debt story has long provided classic macro narrative fuel. The unsustainability of debt and the potential dilution of currency are fertile ground for Bitcoin’s stories as “digital gold” and “sound money.” Whenever doubts about the dollar’s long-term purchasing power arise, this narrative becomes especially loud. But on the flip side, Bitcoin often exhibits “risk asset” behavior at the trading level: when treasury yields (especially real yields adjusted for inflation) rise, and global dollar liquidity tightens, Bitcoin’s price tends to come under pressure along with other tech growth stocks. Thus, the US debt trajectory acts like a coin’s two sides, simultaneously fueling two opposing forces: one reinforcing its long-term store of value faith, the other suppressing short-term risk appetite.

Key Data Linking US Debt Crisis and Crypto Markets

Debt Core Data

• US public debt (end of 2025): approx. $38.4 trillion
• Average household share: approx. $28.5K
• Daily debt increase: approx. $5B–$7B
• FY2025 net interest expense: $1.216 trillion
• Expected breach of $40 trillion: Summer 2026

Market Impact Mechanisms

• Fed’s end of balance sheet reduction: December 1, 2025
• Stablecoins holding short-term Treasuries: now a significant marginal buyer
• Key observation: CBO Budget and Economic Outlook Report 2026–2036 (February 11, 2026)

Disruptive turn: from outsider to financier—stablecoins as hidden treasury buyers

In recent years, the crypto world has viewed the US treasury market like sailors watching the weather—a controllable external environment that can determine the course of navigation. But this dynamic is undergoing a fundamental shift. Now, part of the crypto ecosystem is directly “inside” the treasury market, becoming an increasingly important participant. The core of this shift is stablecoins.

To support their 1:1 peg to the dollar, mainstream stablecoin issuers like Tether and Circle must hold large amounts of highly liquid, low-risk reserve assets. The majority of these reserves are short-term US Treasuries and repurchase agreements. As stablecoins’ total market cap surpasses hundreds of billions and continues to grow, their demand for short-term Treasuries has evolved from a negligible fraction into a significant marginal buying force. Major financial media like Reuters have begun to notice and report this phenomenon, pointing out that stablecoin issuers are becoming a “meaningful demand source” for short-term US debt.

This role shift brings a series of profound and contradictory effects. On the positive side, the crypto ecosystem is integrating with the core collateral market of the global financial system in an unprecedented way. This could lead to more stable pegs and broader acceptance. But on the other hand, it also means that the fate of crypto markets is more tightly linked to the stability of the treasury market. Researchers at the Kansas City Fed warn that the growth in stablecoin demand for Treasuries involves trade-offs: large inflows into stablecoins could reduce bank deposits, potentially impacting traditional credit creation. Crypto traders instinctively understand: global liquidity is a pool—water drawn from one side inevitably affects the depth on the other.

More concerning is the potential risk transmission pathway. During market stress, a wave of stablecoin redemptions could force issuers to rapidly sell their treasury holdings for cash. This concentrated, quick sell-off could exacerbate treasury market volatility, even triggering a “flash crash” of liquidity. Think tank Brookings has begun openly discussing this risk. It suggests that during future treasury market turbulence, some of the instability could originate within the crypto world, creating a complex feedback loop.

The liquidity magic: Fed’s “blink” more important than debt figures

To connect Washington’s debt math with Bitcoin’s candlestick charts, the most direct bridge is liquidity—the availability and price of funds in the financial system. Debt size is a slow-moving variable, while liquidity tightness or looseness is a fast variable capable of instantly changing asset prices.

By the end of 2025, the Fed made a key decision: to announce the end of its balance sheet runoff (quantitative tightening) starting December 1. Almost simultaneously, policymakers began engaging in “reserve management purchases,” buying short-term government bonds. The goal was clear: to ensure bank reserves remain “ample” for stable interest rate control. Although headlines may proclaim “all is well,” the end-of-year liquidity crunch still prompted banks to use the Fed’s standing repo facility, reminding markets that systemic fragility may lurk beneath the calm surface.

Piecing these fragments together reveals a market reality crypto traders should recognize: when the Fed manages reserves carefully, the money market nerves are taut, and the Treasury Department issues record amounts of short- and long-term debt, liquidity itself becomes a policy-controlled key variable. Its impact on Bitcoin prices is often more direct and intense than the abstract debt total. In a “bullish liquidity” environment—ample funds and low costs—Bitcoin tends to rise smoothly; when liquidity tightens, regardless of debt levels, Bitcoin and other risk assets may suffer together.

Three future paths: Bitcoin survival guide amid debt tides

No one can predict the future with certainty, but we can sketch several plausible scenarios and analyze how Bitcoin might behave under each. This is not prediction but a mental map to prepare for uncertainty.

Scenario 1: Slow grind, rising debt, yields high

A world dominated by “term premium.” Investors demand higher compensation for holding long-term bonds due to pessimism about long-term debt supply and inflation risks, steepening the yield curve. In this world, Bitcoin’s upside remains, but the path is bumpy. Higher real yields act like a magnet, pulling capital seeking “risk-free returns” away from high-risk assets. Bitcoin’s behavior would resemble a volatile tech or growth stock, with increased correlation to indices like the Nasdaq, and the “digital gold” safe-haven narrative temporarily sidelined.

Scenario 2: Growth panic, yields fall faster than debt rises

A world driven by recession fears or sharp slowdown. Concerns about growth outweigh fears of debt and inflation, pushing yields down and liquidity conditions easing. Despite debt still increasing (automatic stabilizers often widen deficits during recessions), the market’s focus is on yield direction and funding costs. Historically, this environment offers Bitcoin the clearest upside path. Cheap money rekindles risk appetite, capital searches for high returns, and Bitcoin’s scarcity and high beta make it an attractive target.

Scenario 3: Market “tantrum,” poor auction results, policy shocks, or inflation reignition

A tail risk scenario—chaotic and uncertain. Concerns about treasury supply meet a catalyst (poor auction results, unexpected inflation data, geopolitical shocks), causing bond yields to spike rapidly. Risk assets, including Bitcoin, are sold off first. But if subsequent policy responses reveal “financial repression”—e.g., deeper central bank interventions or increased reliance on short-term issuance—narratives may shift. In this environment, Bitcoin’s story as a hedge against monetary system uncertainty could re-emerge after initial declines, leading to a rebound.

The Congressional Budget Office’s upcoming long-term budget and economic outlook report on February 11, 2026, will provide key baseline assumptions for which scenario is more likely. Its forecasts for deficits, debt, and economic growth over the next decade will become new risk anchors.

Deep dive: Stablecoins—the Trojan horse connecting crypto and TradFi

To fully understand the disruptive nature of the current situation, we must delve into what stablecoins are and how they evolved into today’s form. Simply put, stablecoins are cryptocurrencies designed to maintain stable value, usually pegged to fiat currencies like the USD. But the real mystery lies in the reserve asset mechanism backing their value.

Currently, mainstream centralized stablecoins (like USDT, USDC) use full collateralization, with reserves mostly in cash, short-term US Treasuries, and commercial paper. This makes them essentially a blockchain-based, 24/7 global “money market fund.” Their explosive growth has created a new, global short-term dollar credit market outside traditional banking. The reserve demand directly translates into rigid purchases of US debt, especially short-term Treasury bills. This explains why the crypto world, once a critic of the US debt system, has become a participant in its financing. This integration is a double-edged sword: it grants unprecedented financial system connectivity but also exposes crypto to systemic risks of traditional finance. Whether decentralized stablecoins (like DAI, backed by crypto collateral) can offer a more “native” alternative with less reliance on traditional debt remains an important industry question.

Alternative opportunities: beyond Bitcoin, which crypto assets might benefit?

In the macro narrative dominated by debt and liquidity, savvy investors should look beyond Bitcoin. Several crypto sectors could benefit differently:

1. Decentralized stablecoins and RWA (real-world assets): If trust in centralized institutions’ large treasury holdings wanes, transparent, diversified, and decentralized stablecoin protocols may gain favor. Tokenized US debt (RWA projects) offering on-chain access to this asset class could see demand grow in tandem with treasury market volatility.

2. Crypto-native “hard assets” and storage protocols: The “digital gold” narrative for Bitcoin spills over into other scarce, value-storing crypto assets. For example, decentralized storage tokens like Filecoin or Arweave, with utility-driven scarcity, might attract attention under macro themes of “asset hardening.”

3. Privacy coins and sovereignty alternatives: In scenarios of worsening debt crises, increased capital controls, or wealth taxes, demand for financial privacy and sovereign assets could surge. Privacy-focused cryptocurrencies like Monero or Zcash, as “uncensorable value transfer tools,” may regain market interest.

Conclusion: navigating between faith and liquidity

US debt figures will continue to rise—perhaps the easiest prediction in finance. The harder part is how investors will feel at each moment—reacting with higher yields, looser liquidity, or a strange mix of both.

Bitcoin lives in this tension: on one side, a long-term faith in its monetary nature; on the other, short-term capital flows driven by liquidity plumbing. This gap is widening. On one hand, debt expansion makes Bitcoin’s role as a new monetary system’s long-term bet more plausible; on the other, stablecoins—part of this system—drag crypto markets into the ebb and flow of traditional liquidity.

For investors, the key may be: accept this contradiction. In allocation, recognize its long-term hedge against currency devaluation as a “special option” in your portfolio; in trading, respect its short-term risk asset nature driven by global dollar liquidity, closely monitoring Fed balance sheet operations, Treasury issuance plans, and auction sentiment. Ultimately, in the flood of debt, survival in the short term depends on riding the liquidity waves, while long-term victory hinges on betting on the right narrative of history.