Strive CEO: The U.S. Treasury market is approaching a critical point, and Bitcoin's "home run moment" is forming

Author: Matt Cole, Strive CEO

Compiled by: Jiahua, ChainCatcher

This is another long macro article, but I don't often write such content. A macro shift that is worth paying attention to for decades is taking shape before our eyes.

One of the key points I discussed last week regarding the long-term trend of the dollar is where long-term U.S. Treasury yields will head.

Stanley Druckenmiller published an excellent article in The Wall Street Journal last night titled "Let the Bond Market Speak." The current fiscal trajectory of the U.S. is unsustainable: with the economy nearing full employment and inflation still above target, the fiscal deficit remains close to 6% of GDP, which is extremely irresponsible; the expansion of welfare spending such as Social Security and healthcare is tantamount to shifting the fiscal burden to the next generation; attempting to suppress long-term U.S. Treasury yields does not address the root of the fiscal problem.

The Real Constraint on Fiscal Issues Lies in Politics, Not Economics

Druckenmiller's point is that suppressing yields is merely delaying the fiscal corrections that high rates would force Washington to undertake. From an economic logic standpoint, he is correct, but I believe our judgments about the ultimate outcome may not differ significantly.

As early as the mid-2010s, I concluded that relying on the bond market to continuously exert pressure to force the U.S. to establish fiscal discipline sufficient to solve the problem is unrealistic. This was also one of the key reasons I initially turned to Bitcoin. Druckenmiller himself has invested in Bitcoin and other hard assets, which leads me to believe that his assessment of the fundamental issues may align with mine.

Rather than predicting what Washington will ultimately do, his article serves as a warning to Washington about what it should do before it is too late.

In my view, this is more like a near-desperate call from a top macro investor: let the market constrain a political system that can no longer self-regulate. I hope policymakers will heed this, but unfortunately, I know they won't.

Druckenmiller himself has clearly pointed out the political constraints: no political party will make welfare spending reform a campaign platform. This is precisely the problem.

Fiscal plans that appear feasible on paper often do not help parties win elections. While managers at the Treasury and other government departments are appointed officials, their actions are ultimately constrained by elected politicians and their constituents.

This distinction is very important. Appointed officials can be very smart, responsible, and genuinely wish for the country to become stronger, but they are still bound by the incentives of real politics.

Scott Bessent clearly understands the fiscal issues facing the U.S. I believe his basic diagnosis of the problem is consistent with Druckenmiller's. However, when Bessent managed the Treasury, he had to operate within the constraints of the real political system, where the policy direction is determined by elected officials, making it impossible to operate solely according to the optimal solution on the macroeconomic ledger.

The experience of the Department of Government Efficiency (DOGE) has already illustrated this point. Elon Musk may be the most effective business operator of our generation, and when he entered government, he was given a clear mandate to significantly cut spending.

But the institutional and political forces are much stronger. DOGE has not been able to change the fiscal trajectory of the U.S., and the fiscal deficit continues to expand.

This is not a denial of the capabilities or motivations of the relevant personnel, but rather an indication that the constraints themselves are structural. Investments must be grounded in reality, not based on the world we wish to see.

As the fiscal situation continues to deteriorate, and policymakers refuse to allow long-term rates to fully reflect this change, the adjustment pressure will not disappear but will merely shift elsewhere. The dollar will become the pressure relief valve for this system.

5.25%---5.85%: The Policy Threshold in the U.S. Treasury Market

Today's U.S. Treasury market can no longer be described as a completely unregulated free market.

The Federal Reserve currently holds about $1.6 trillion in U.S. Treasuries with maturities exceeding 10 years, accounting for about 28% of the total amount of Treasuries in that maturity range.

After long-term yields approached a nearly twenty-year high, the U.S. Treasury doubled its planned buyback scale for 10 to 30-year Treasuries and clearly stated that it could significantly expand the operation scale in the future.

The significance of these actions lies not only in the scale of funds but also in what they reveal about the government's logic in responding to rising long-term yields.

The Treasury has clearly shown sensitivity to rising long-term yields, but the funds invested are insufficient to truly reverse the yield trend. The market did not view the initially announced buyback plan as a turning point in the trend.

Druckenmiller is right: once the market determines that the Treasury is propping up Treasury prices and suppressing long-term yields, every further rise in yields will become a new test of the policy bottom line.

I believe the Treasury will ultimately regret acting so early with such a limited scale. It exposed its sensitivity to long-term yields, but the scale of investment was insufficient to reverse market trends, effectively inviting the market to seek out the true policy red line.

My expectation is that the current intervention will not be effective, long-term yields will continue to rise, and the bond market will ultimately force Washington to prove whether it is truly prepared to take action.

When the market truly reaches the policy bottom line, I believe Washington will ultimately take real action. Expanding Treasury buybacks, utilizing the Treasury General Account (TGA), and other policy signals are certainly important, but if long-term Treasuries continue to be sold off, merely releasing signals will not be enough to change the market.

At some point, the market will force the Treasury to stop telling investors "what it can do" and instead genuinely invest enough to change market trends.

For the past few years, I have been focusing on a key resistance range on the 10-year Treasury yield chart: 5.25%---5.85%.

In my view, this is the most critical testing area in the current trend of rising long-term rates. This range is not a temporary designation based on the past week's market.

It comes from my fundamental judgment of the U.S. debt trajectory: as fiscal issues worsen, long-term yields will naturally rise; and at a certain level, the political and financial consequences of continuing to tolerate rising yields will become unbearable, forcing the Treasury or the Fed to act.

Charts are certainly important, but this has never been about randomly drawing a few lines on a chart and assuming yields will automatically reverse at some point.

This range is important because I have always believed that the deteriorating fiscal fundamentals will ultimately push yields toward it; at the same time, the costs of allowing yields to significantly break through this range will also become increasingly difficult to bear.

If the 10-year Treasury yield enters the 5.25%---5.85% range, the headlines can almost be written in advance: the 10-year Treasury yield rises to levels not seen since around 2007, and this time, the U.S. carries far more debt than it did then, with a much more difficult fiscal situation.

Prices move first, and narratives follow. When Treasury prices fall sufficiently, the market will quickly begin to discuss "the dysfunction of the Treasury market," "government financing becoming unstable," and even "the world's most important bond market is in crisis."

This narrative itself will increase the political pressure on the government to take action. Mortgage rates, government interest expenses, stock valuations, and the overall financial environment will all come under greater pressure, and with each further rise in yields, the government's interest burden and fiscal pressure will also increase.

In fact, the market has not even entered the range I am watching, and the Treasury has already begun to respond.

If yields ultimately enter this range, I expect the Treasury or the Fed will be the first to back down and intervene massively in the market.

Possible tools include: significantly expanding Treasury buybacks, relying more on short-term Treasury financing, utilizing the Treasury General Account, re-expanding the Fed's balance sheet, managing yields in explicit or implicit ways, or using a combination of the above tools.

If the scale of intervention in the Treasury market that ultimately emerges is completely out of proportion to the currently announced plans, I would not be surprised.

However, before policies truly intervene on a large scale, financial markets may first experience significant pressure. Rising long-term yields will further depress stock valuations, while AI is leading more and more investors to question whether corporate moats can be maintained in the long term. With both occurring simultaneously, traditional stocks and other risk assets will face greater pressure.

The Dollar as a Pressure Relief Valve: Opportunities for Bitcoin Are Forming

Bitcoin is particularly worth paying attention to, as the endgame of policy is becoming increasingly clear.

During the last surge in yields, will Bitcoin follow the market with a significant decline, or will it withstand the pressure and continue to rise? In my view, the probabilities of both scenarios are roughly equal.

If Bitcoin experiences a significant drop at that time, I would see it as a potentially once-in-a-lifetime buying opportunity, as policymakers will ultimately be forced to intervene in the market on a larger scale.

But I will not adjust my entire investment portfolio in anticipation of this opportunity. The current macro environment is already favorable enough. In my view, if corresponding positions have not yet been established, now is the time to start positioning.

If a pullback occurs, it will be a rare opportunity; but the market may also price in the eventual policy shift ahead of time, thus ignoring short-term pressures.

From the perspective of traditional fixed-income investments, the 5.25%---5.85% range has always been suitable for significantly increasing duration exposure.

If the Treasury or the Fed acts as I expect, long-term Treasuries may perform exceptionally well, as policymakers will once again push yields lower.

However, Strive does not execute a fixed-income strategy but rather a Bitcoin strategy. In this macro environment, what we need to do is maximize Bitcoin exposure while remaining prudent.

Treasuries will certainly benefit from policy intervention, but I prefer to go long on risk and long on scarcity, especially on the strongest-performing assets among them. For me, Bitcoin is that asset.

Compared to holding an asset whose yields are explicitly suppressed by policymakers, Strive prefers to amplify Bitcoin exposure in such a macro environment.

This also brings us back to the dollar perspective I raised last week.

Druckenmiller is right: the government will ultimately fail if it tries to prop up a certain price against the fundamentals. But that does not mean the government cannot suppress the specific price it targets for a considerable period.

If Washington refuses to genuinely cut spending, then among the politically available options, suppressing long-term yields and allowing the dollar to weaken may already be the least costly one.

The correct solution is, of course, to implement more conservative and sustainable fiscal policies. However, since this path is politically difficult to achieve, allowing long-term yields to rise uncontrollably may quickly trigger a more direct crisis in the Treasury market.

Both the financial repression of long-term rates through policy and the weakening of the dollar are not ideal outcomes, but they are still more acceptable than allowing the U.S. government's financing system to rapidly fall into disorder under market shocks.

This is why the dollar will become a pressure relief valve. The Treasury and the Fed can suppress long-term yields, but they cannot make the fiscal imbalance disappear into thin air. The costs of adjustment will inevitably shift elsewhere, and a weaker currency is a politically easier choice to bear.

Therefore, I do not think it is entirely unimaginable for the dollar index to fall to the high 60s or low 70s. At that time, the dollar will drop to its lowest level in modern history, but from a longer historical perspective, it is not unprecedented.

Bitcoin has repeatedly benefited in past weak dollar environments, but it has never experienced a period when the dollar index trends down to this level. Bitcoin was born after the dollar's low in 2008, and its entire history has been in an environment where the dollar has rebounded from that low or is significantly above that level.

Thus, a trend-setting new low for the dollar will present a truly unprecedented macro environment for Bitcoin. Changes in the Treasury market also add another layer of fundamental support to the framework I previously proposed.

The dilution of the dollar's purchasing power will expand the pool of funds seeking scarce assets; as Bitcoin's recognition as a monetary asset continues to rise, it will attract an increasingly higher share of this pool of funds.

At the same time, AI is making technology and product supply more abundant, making it more difficult for many traditional companies to maintain their moats in the long term. In contrast, Bitcoin's scarcity cannot be replicated or diluted by competitors, and its appeal will further increase.

The most explosive scenario is when these forces begin to work simultaneously: the global capital seeking scarce assets continues to increase; as Bitcoin continues to outperform other scarce monetary assets, its share of the funds attracted will keep rising; Strive will further amplify the elasticity brought by Bitcoin's rise through its own capital structure.

These driving factors are not independent of each other; they will compound.

This is what I see as the "home run scenario": the dollar weakens, policymakers increasingly actively suppress long-term Treasury yields, AI continues to undermine the scarcity of traditional company moats, Bitcoin re-emerges as the strongest asset among scarce monetary assets, and Strive is prepared to maximize Bitcoin's performance in this environment.

If the bond market triggers a brief decline in Bitcoin during this process, I hope to buy in large quantities; if Bitcoin prices in the policy endgame ahead of time without a significant pullback, I hope I have already established my positions.

Druckenmiller calls on Washington to "let the bond market speak" at the end of his article. I agree with his warning and, like him, feel frustrated that Washington is reluctant to address fundamental issues and ultimately leaves the costs to the next generation.

But the bond market must release a stronger warning to potentially force policymakers into sufficiently large interventions. When that moment arrives, they are more likely to choose to suppress this voice rather than undertake a fiscal restructuring that would fundamentally resolve the issues.

The path I have observed for many years is becoming increasingly clear: the 10-year Treasury yield entering the 5.25%---5.85% resistance range, the narrative in the Treasury market turning toward crisis, Washington being forced to truly invest large-scale funds, and the pressure that should be reflected in long-term yields being shifted to the dollar, accelerating the long-term downtrend of the dollar.

In summary: the market's expectations for Bitcoin's long-term upside potential may still be overly conservative.