Rallying Through The Downgrade

Key Takeaways

• The US fiscal outlook continues to deteriorate as the national debt keeps rising
• Risk markets have shaken off the initial long term yield spikes over the weekend
• Bitcoin hovers near historic highs as fixed-supply assets benefit from rising liquidity

‍

Digital Asset Commentary

Moody's downgraded US debt on Friday, making it the last of the three major credit rating agencies to remove the country’s AAA rating. The agency warned that the national debt could rise to 134% of GDP by 2035, up from 98% in 2024. This downgrade comes in the context of former President Trump’s “big beautiful” tax bill, which nonpartisan analysts at the Committee for a Responsible Federal Budget estimate would add between $3 trillion and $5 trillion to the current $36.8 trillion national debt over the next decade. To make matters worse, debt reduction efforts through DOGE cuts have fallen short, yielding only $170 billion in savings so far.

Meanwhile, bond yields continue to climb, with the 30-year yield rising above 5% over the weekend and the 10-year yield approaching that level. Unless the US takes meaningful steps to stabilize its fiscal position, we may be heading toward some form of yield curve control to prevent rates from reaching unsustainable levels. In theory, fixed-supply assets like gold and Bitcoin should benefit in this environment.

The SPY, QQQ, and Bitcoin are all now within 5% of their respective all-time highs (ATHs). Bitcoin closed the week at $106,487, its highest weekly close on record. After rallying more than 40% from the post-"Liberation Day" lows in April, BTC may need further consolidation before making a decisive break above the $109K ATH. In contrast, altcoins have underperformed over the past week, mostly holding steady following significant gains in the prior two weeks.

Globally, several companies and governments are accelerating their Bitcoin, Ethereum, and Solana accumulation strategies. Notably, Strategy (MSTR) continues to purchase more BTC, adding another 7,000 BTC to its holdings last week. While the growing number of entities buying BTC may give off a “late-cycle” vibe, long-term trend metrics suggest otherwise. Current indicators remain well below the overheated levels seen at previous cycle peaks, which were characterized by clear red flags.