Bitcoin and gold are finding themselves in an intriguing sweet spot as the once-thought-unshakeable bond market reveals cracks in what some are calling the U.S. fiscal “kayfabe.” That’s the wrestling term for maintaining the illusion of reality—a parallel that seems apt as the U.S. financial markets stumble amid concerns about fiscal sustainability. As of May 2025, with the U.S. 30-year Treasury yield breaching the 5% mark, and inflation-adjusted 30-year TIPS reaching heights not seen since 2001, investors are looking elsewhere for stability, turning to time-honored havens like bitcoin and gold.
Bonds Blast the Kayfabe
This seismic shift in the bond market is shaking up traditional financial assumptions. Recently, the 30-year Treasury yield soared past 5%, echoing concerns from October of last year. Yet, the real revelation is the surge in yields for Treasury Inflation-Protected Securities (TIPS), which have jumped to a high of 2.7%. In simpler terms, investors are demanding returns significantly above inflation—indicative of a lack of faith in the government’s fiscal path.
“The world is saying, we don’t trust your long-term fiscal trajectory and we want to be compensated for it,” observed EndGame Macro, a pseudonymous analyst on X, highlighting the growing skepticism around U.S. fiscal policies. This sentiment is further echoed by Robin Brooks of the Brookings Institution, who points to the five-year forward real interest rate peaking at levels unseen since 2010, underscoring a growing disconnect between fiscal policy and market expectations.
FX-Bond Correlations Are Dead
Another clue that the financial system’s facade is faltering is the breakdown of the once-reliable correlation between forex and bond markets. Historically, rising bond yields would bolster the home currency. However, despite an increase in U.S. two-year yields, the EUR/USD pair has risen, suggesting investors are wary of U.S. assets due to fiscal concerns. This shift is mirrored in the options market, which is now more bullish on the euro compared to the dollar, an unusual scenario since the COVID era.
Bullish Bitcoin and Gold
In times of fiscal uncertainty, governments often resort to inflating away their debts, a move that historically boosts demand for hard assets like gold and bitcoin. Legendary trader Paul Tudor Jones noted last year, “All roads lead to inflation,” positioning bitcoin and gold as preferable holdings over long-term bonds. Economist Russell Napier has similarly warned of an era of financial repression, where inflation outpaces savings returns—a scenario that could further drive interest toward these hard assets. This aligns with recent observations in Stagflationary Data Puts Pressure on Bitcoin, Stocks, highlighting the broader economic pressures influencing asset preferences.
Financial repression, a term describing government policies that channel private funds to the public sector, is already on the horizon. This could manifest through interest rate caps or yield curve control, where central banks buy bonds to keep long-term yields in check. Arthur Hayes, CIO of Maelstrom, suggests that such measures could ignite a significant bitcoin rally, likening the potential liquidity surge to a form of unacknowledged quantitative easing.
Impending Rally Won’t Be Smooth
Despite the bullish sentiment surrounding bitcoin, this isn’t a straightforward path to prosperity. The U.S. Treasury market underpins global finance, and increased volatility here could lead to tighter financial conditions, prompting a rush to cash that might see investors liquidating assets, bitcoin included. For further insights, see Gold Continues Correcting and That Might Be Good for Bitcoin, which explores how shifts in gold prices could impact bitcoin’s trajectory.
Yet, there’s a glimmer of calm—the MOVE index, reflecting the 30-day implied volatility of U.S. Treasury notes, remains in decline. Whether this tranquility persists is anyone’s guess, but for now, the stage is set for bitcoin and gold to shine as investors reevaluate what constitutes a “safe haven” in these uncertain times.
As the U.S. fiscal narrative continues to unfold, the question remains: can these alternative assets maintain their allure, or are we merely witnessing another chapter in the grand play of financial kayfabe? The unfolding months will certainly hold the answer.
Source
This article is based on: Bitcoin and Gold in Sweet Spot as Bond Market ‘Smackdown’ Exposes the U.S. Fiscal Kayfabe: Godbole
Further Reading
Deepen your understanding with these related articles:
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- Bitcoin Surges Past $94,000 as Institutional Interest and Market Optimism Grow
- Bitcoin Surpasses $95K Amid Resilient U.S. Stocks, Analysts Voice Concerns Over Market Perception (openai)
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
