Bitcoin Surges as ETF Demand Meets a Wave of Short Covering

Bitcoin moved above the $80,000 mark, reaching its highest point in over three months as a decline in the U.S. dollar boosted sentiment across the cryptocurrency market. BTC climbed as high as $81,200 before trading near $80,300, leaving it about 16% higher than the previous week.

The rally has been fueled by heavy demand for U.S. spot Bitcoin ETFs, alongside a rapid wave of short covering that intensified as prices continued to rise.

The U.S. Treasury recently increased its longer-term government bond buybacks from $2 billion to $4 billion. While the program does not directly expand the money supply, it could reduce longer-term borrowing costs and give markets an impression similar to monetary easing.

The move also strengthened the appeal of the so-called debasement trade, which focuses on assets that may preserve value when investors worry about inflation, currency depreciation and large fiscal deficits. Bitcoin’s maximum supply of 21 million coins adds to its appeal as a scarce asset.

At the same time, the dollar weakened. The ICE U.S. Dollar Index declined 0.8% in the week following the Treasury announcement, while gold rose above its 200-day moving average near $4,518 an ounce.

Short liquidations provided an additional boost. About $1.5 billion worth of Bitcoin short positions were wiped out during the rally, including nearly $700 million in a single minute. As short sellers close their trades, they are forced to buy Bitcoin, creating extra demand and potentially accelerating the price increase.

Spot Bitcoin ETFs have also become an important source of market demand. The investment products allow investors to gain exposure to Bitcoin through traditional brokerage accounts without directly purchasing or holding the cryptocurrency.

Treasury Buyback Fails to Keep Bond Yields Down

The Treasury is scheduled to begin its expanded purchases of longer-dated Treasurys on September 9, with the program designed to improve liquidity in the government bond market. However, the early positive reaction in bonds quickly faded.

The 10-year Treasury yield climbed to 4.737%, while the 30-year yield reached 5.276%, according to Dow Jones Market Data cited by MarketWatch. Both yields later returned toward levels seen before the larger buyback program was announced.

Ian Lyngen, BMO’s head of U.S. rates strategy, highlighted continued concerns over de-dollarization, U.S. creditworthiness and a potentially higher term premium as major factors weighing on bonds. His comments suggest the Treasury action has not substantially changed the underlying pressures keeping yields elevated.

If Bitcoin maintains its breakout above $80,000, the cryptocurrency could eventually target the $95,000-$100,000 region. However, whether the rally can continue at its current pace remains uncertain.

For now, Bitcoin’s latest surge underscores the combined impact of ETF demand, shifting macroeconomic expectations and leveraged positioning. Its fixed supply also keeps the cryptocurrency in the spotlight alongside gold as investors assess inflation risks and potential weakness in the dollar.