U.S. federal debt tops $40 trillion as a softer dollar lifts bitcoin and gold

BlockBeats reported that on Aug. 20, U.S. federal debt officially moved above $40 trillion. The fiscal deficit in July alone was $432 billion. Over the first 10 months of fiscal year 2026, interest costs have already surpassed Medicare spending, making debt service the second-largest federal outlay after Social Security. With the deficit running near 6% of GDP and long-dated issuance continuing to climb, the pressure on Treasury yields is increasingly tied not just to inflation, but also to heavier fiscal supply, elevated government funding needs, and higher term premiums. In response, the Treasury said it will raise the size of its buybacks for 10- to 30-year Treasuries, a step aimed at easing upward pressure on long-term yields. The signal briefly improved risk sentiment and underscored official sensitivity to financing costs as long-end yields remain high. Markets reacted quickly. The U.S. dollar index (DXY) fell 0.9% to about 97.9, bitcoin jumped 7.13% to $69,310, and gold gained 4.31% to $4,522. A weaker dollar and lower long-term yields opened room for a repricing in non-dollar and high-beta assets, making the simultaneous strength in bitcoin and gold particularly notable. Fed minutes released most recently still show several officials see the possibility of additional rate hikes if inflation fails to keep cooling, indicating policy has not pivoted toward easing. As a result, the latest move looked more like a loosening in financial conditions and a dollar repricing tied to Treasury action in the long-end market, rather than a market pricing in rate cuts. For bitcoin, the key remains whether the DXY and long-term Treasury yields can stay soft. Continued dollar weakness and stable long-end yields could help extend the rally. If sticky inflation and the $40 trillion debt overhang push term premiums higher again and lift yields, valuation pressure could return to the crypto market.