The 1.8 trillion deficit hits the bond market and soars, and Bitcoin may experience a 30% shock

According to WooFunai, US Treasury data shows that the cumulative deficit for the 2026 fiscal year has reached 1.8 trillion US dollars. This huge gap and soaring bond yields together form a macroeconomic clash, causing the Bitcoin market to fall into an extremely unstable volatile pattern.

Currently, the price of Bitcoin has fallen by about 50% from its all-time high set in October 2025. Although Robert Mitchnick, head of digital assets at BlackRock (BLK.US), recently pointed out a “subtle but obvious positive shift” in market sentiment and reiterated the pattern of Bitcoin ending at a higher price after five complete bull and bear cycles, the price has not effectively escaped the low fluctuation range.

It is worth noting that BlackRock (BLK.US)'s Bitcoin ETF (IBIT) holdings are close to 750,000, worth about $50 billion, while the overall net inflow of US spot Bitcoin ETFs exceeded 850 million US dollars last week, the best weekly performance since mid-April.

However, the positive signals of capital inflows from these institutions have not been transformed into substantial upward momentum. The market is surging undercurrent under the appearance of calm. Investors generally expect the so-called “ultimate catalyst” to break the impasse, yet uncertainty at the macro level is increasing anxiety, making prices subject to wider macroeconomic variables even with the endorsement of large institutions.

One of the core variables driving market sentiment from “calm” to “tight” is the continued expansion of the US fiscal deficit and the resulting expectation of an increase in currency production. According to the latest data from the US Treasury Department, the federal budget deficit in July reached 432 billion US dollars, the largest monthly gap since March 2021, driving the cumulative deficit in fiscal year 2026 to 1.8 trillion US dollars, second only to the extreme high set during the 2020 pandemic. The total federal debt is close to 40 trillion US dollars.

In this context, many crypto asset investors believe that government spending far exceeds revenue and can only rely on debt issuance and financing. If the private sector's ability to handle it is limited, it may eventually force the Federal Reserve to restart balance sheet expansion. Anthony Pompliano, a well-known investor in the crypto sector, said bluntly in an interview with Fox Business Channel that the government's financial mismanagement will force continuous currency issuance, while assets such as Bitcoin, gold, real estate, and stocks will benefit from the depreciation trend of fiat currencies for a long time. He even predicted that the average annual increase in Bitcoin is expected to remain at about 30% over the next 20 years. BitMEX founder Arthur Hayes also pointed out in a recent analysis that the stronger the monetary expansion, the stronger the basis for the upward shift in Bitcoin's valuation center, and indicated that it is increasing the allocation of Bitcoin, physical gold, and gold mining stocks. This investment logic based on fiscal dominance theory is strengthening the market's long-term belief in Bitcoin as an anti-inflationary asset.

However, the bond market gave off diametrically opposite risk signals, becoming another major macro-variable suppressing risky assets. Global bond yields rose sharply this week. US 30-year Treasury yields climbed to their highest level since 2002. The 20-year term hit a new high after 2006, and the benchmark 10-year term also hit its peak since 2007. Traders generally attribute this round of rising yields to a combination of factors, including the continued expansion of fiscal deficits, increased demand for financing brought about by artificial intelligence infrastructure construction, high international oil prices, and uncertainty about the monetary policy path caused by the new Federal Reserve Chairman Kevin Walsh.

According to data compiled by WooFunai, Sean Farrell, head of digital asset strategy at Fundstrat, pointed out that the actual volatility of Bitcoin on the 30th had fallen to one of the lowest ranges in history. He counted the past eight periods of similar extreme low volatility and found that the median fluctuation in the absolute value of Bitcoin reached 30.2% within the next 60 days, with increases and falls accounting for four times each, indicating that this indicator only indicates the intensity of fluctuations and not the direction. Using the current price of about 64,000 US dollars as a benchmark, a 30% increase may push the price to around $83,200, while a drop of the same magnitude may cause it to fall back to 44,800 US dollars.

Farrell specifically emphasized that Bitcoin's recent rebound is due in part to short recovery rather than large-scale intervention of incremental capital; since the evening of last Friday, the number of open futures contracts denominated in Bitcoin has been reduced by about 8%, and it clearly sees the “continued rise in real bond yields” as a key variable where the current low volatility pattern may be broken. The YardeniResearch strategy team also stated in the report that although the panic mechanism has not yet been triggered, they are closely monitoring whether bond market participants will take substantial action. They believe that US Treasury yields are still in the normal range of 4% to 5%, but they are close to the edge and need to be highly vigilant.

The so-called “bond volunteers” are market forces that force the government or central bank to adjust policies by selling treasury bonds and boosting yields. Once they gain strength, high-valuation risk assets usually bear the brunt of the impact. The continued rise in bond yields has significantly reshaped the focus of the crypto market. Currently, traders are paying more attention to the treasury bond market than judging the Fed's short-term interest rate path. Analysts at crypto trading platform Bitunix pointed out that the core concerns of the market are no longer limited to whether the Federal Reserve will raise or cut interest rates, but focus more on whether long-term treasury yields continue to rise, whether geopolitical risks evolve into a continuous energy supply shock, whether inflationary pressure resumes, and whether global risk premiums widen further. If 30-year treasury yields remain high while energy prices rise due to geopolitical tension, stocks, cryptocurrencies, and other overvalued assets may face systemic pressure.

Under this two-way risk pattern, market participants are gradually preparing mentally for a potential deep pullback. Robin Singh, CEO of crypto tax service company Koinly, said that as the US midterm elections approach, it is not unimaginable that Bitcoin will once again experience a sharp decline, and it is a reasonable scenario for the price to fall back to the $55,000 range. He believes that judging from historical experience, the market often needs to go through a round of thorough cleaning — a sell-off where the last batch of bulls completely abandons before the bottom of the cycle can be confirmed. In summary, on the one hand, the monetary expansion narrative spawned by huge fiscal deficits provides Bitcoin with medium- to long-term upward momentum; on the other hand, the rise in actual capital costs reflected by soaring bond yields is putting substantial pressure on risky assets.

Currently, the Bitcoin market presents a pattern of “sellers exhausted, buyers wait and see”, and leveraged funds are already betting on a rebound in advance, and the internal structure of the market itself is highly unstable. Historical data shows that the probability of an absolute fluctuation of about 30% over the next 60 days has increased significantly. Regardless of the final direction, market participants need to be highly alert to this and prepare for corresponding risk management. Following the tightening of macro-liquidity in 2022, Bitcoin is once again facing the risk of drastic repricing dominated by traditional financial market variables.