The debasement trade, where investors flee the dollar and major currencies for gold, bitcoin and other alternative assets, is making a comeback following the Treasury's efforts this week to curb borrowing costs.
After months of trading in a tight range, bitcoin has rallied sharply since the Treasury Department announced an expanded bond buyback program on Wednesday. The largest cryptocurrency gained 22% this week, its best weekly performance in more than two years. Gold advanced 5.6%, while the dollar slid, extending its decline after recent government interventions to support the Japanese yen.
"The Treasury announcement for support in the long bonds is a clarion call to the market and a form of easing that crypto has historically always loved," said Joshua Lim, global co-head of markets at trading firm FalconX. "Bitcoin will always be a debasement hedge."
Still, some analysts say bitcoin's recent gains are being driven more by regulatory developments.
-- During a Wednesday meeting with crypto executives at the White House, President Trump urged Congress to pass the Clarity Act, which would represent the first regulatory framework expected to usher in wider acceptance of digital assets.
-- The Securities and Exchange Commission also this week proposed rules that would allow startups to raise money through tokens without triggering securities regulation.
-- On Thursday, Commodity Futures Trading Commission Chairman Mike Selig hosted the inaugural meeting of the agency's Innovation Advisory Committee, noting that he has instructed the CFTC staff to begin developing a market structure for crypto assets.
Notorious for volatility, bitcoin prices can still crash after the sudden burst higher. But after months of bad sentiment, some analysts believe that the price surge may turn things around.
"In crypto markets, price often leads flows and sentiment," said Alex Saunders, head of global quant macro strategy at Citi. "The fact that we had the initial part, whether it be debasement or on the regulatory action, helps galvanize some of the flows."
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