Author: Matt Cole, Strive CEO

Compiled by: Jiahui, ChainCatcher

This is yet another long macro article, but I don’t often write such content. A macro shift worthy of attention 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 was where long-term U.S. Treasury yields are headed.

Stanley Druckenmiller published an excellent article last night in the Wall Street Journal 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; social security, healthcare, and other welfare expenditures continue to expand, effectively 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 is Political, Not Economic

Druckenmiller’s view is that suppressing yields merely postpones the fiscal adjustments that high interest rates would otherwise force Washington to undertake. From an economic logic standpoint, he is correct, but I believe our judgments on the eventual outcome may not differ much.

As early as the mid-2010s, I concluded that relying on the bond market to continuously apply pressure to force the U.S. to establish the fiscal discipline needed to solve problems was unrealistic. This is also one of the primary reasons I initially turned to Bitcoin. Druckenmiller himself has also invested in Bitcoin and other hard assets, which makes me believe that his judgments on 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 should be done before it is too late.

In my view, this is more like a near-all-in appeal from a top macro investor: let the market constrain a political system that can no longer constrain itself. I hope policymakers will heed this advice, but unfortunately, I know they will not.

Druckenmiller also clearly pointed out the political constraints involved: no political party will make welfare spending reform a part of its campaign platform. That is precisely the issue.

Fiscal plans that look feasible on paper often do not help parties win elections. While the officials in the Treasury Department and other government entities are appointed, the boundaries of their actions are ultimately determined by elected politicians and the voters behind them.

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

Scott Bessent clearly understands the fiscal problems facing the U.S. I believe his fundamental diagnosis of the issues is consistent with Druckenmiller’s. However, when Bessent was managing the Treasury, he had to operate within the realities of the political system, where policy direction is determined by elected officials and cannot operate solely according to the optimal plan on the macroeconomic books.

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

But the institutions and political forces are much stronger. DOGE did not manage to change the fiscal trajectory of the U.S., and the fiscal deficit continues to enlarge.

This is not a denial of the abilities or motivations of those involved, but rather an indication that the constraints themselves are structural. Investment must be grounded in reality and not based on the world we hope to see.

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

5.25%—5.85%: The Policy Threshold for the U.S. Treasury Market

Today's U.S. Treasury market can no longer be called a completely unimpeded free market.

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

As long-term yields approach a nearly twenty-year high, the U.S. Treasury has also doubled its planned buyback scale for 10- to 30-year Treasuries and has made it clear that it can significantly expand operations in the future.

The significance of these actions lies not only in the scale of funding but also in what they reveal about the government's logic when faced with rising long-term yields.

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

Druckenmiller is right: once the market believes the Treasury is supporting Treasury prices and suppressing long-term yields, every upward movement in yields will become a new round of probing the policy bottom line.

I believe the Treasury will ultimately regret having acted so early with such a limited scale. It exposes its sensitivity to long-term yields, but the scale of funds isn’t enough to reverse market trends, effectively inviting the market to seek the real 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 demonstrate whether it is genuinely prepared to take action.

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

At some point, the market will compel the Treasury to stop telling investors “what we can do” and instead allocate sufficient funds to change market trends.

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

In my view, this is the most critical test area in the current upward trend of long-term yields. This range is not arbitrarily defined based on the past week’s market behavior.

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

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

This range is important because I have consistently believed that deteriorating fiscal fundamentals will eventually push yields here; at the same time, the costs of allowing yields to break significantly above 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 pre-written: the 10-year Treasury yield rises to levels not seen since around 2007, while this time, the U.S. carries a significantly higher debt load and faces a much more difficult fiscal situation.

Prices move first, and narratives follow. When Treasury prices drop sufficiently, the market will quickly begin discussing “Treasury market dysfunction,” “government financing becoming unstable,” and even “the world’s most important bond market is falling into crisis.”

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

In fact, the market hasn’t even entered the range I’m watching, and the Treasury has already begun to respond.

If yields ultimately enter this range, I expect the Treasury or the Federal Reserve will be the first to relent and intervene in the market at a large scale.

Potential tools include: significantly expanding Treasury buybacks, relying more on short-term Treasury bill financing, utilizing the Treasury General Account, expanding the Federal Reserve’s balance sheet in a clear or implicit way to manage yields, or concurrently using multiple tools mentioned above.

If the scale of future intervention in the Treasury market turns out to be completely different from the plans currently announced, I won’t be surprised.

However, before substantial policies are truly implemented, financial markets may first experience significant pressure. Rising long-term yields will further suppress stock valuations, while AI is causing more and more investors to question whether business moats can be maintained long-term. Both occurring simultaneously will put greater pressure on traditional stocks and other risk assets.

The Dollar Becomes a Pressure Relief Valve, Bitcoin's Opportunity is Forming

Bitcoin deserves more attention, as the final policy outcomes are becoming increasingly clear.

When the last round of yield increases occurs, will Bitcoin significantly retreat along with the market, or will it hold up under 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 inevitably be forced to intervene in the market on a larger scale.

But I won't adjust my entire investment portfolio waiting for this opportunity. The current macro environment is already quite favorable. In my view, if relevant positions have not yet been established, now would be the time to start positioning.

If a correction occurs, it would be a rare opportunity; however, the market may also digest the final policy shift in advance, thereby ignoring short-term pressures.

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

If the Treasury or the Federal Reserve takes action as I expect, long-term Treasuries could perform very well, as policymakers will press to lower yields once again.

However, Strive is not executing a fixed-income strategy but a Bitcoin strategy. In this macro environment, what we need to do is to amplify Bitcoin exposure as much as possible while maintaining caution.

Certainly, Treasuries will benefit from policy interventions, but I prefer to be long on risk and long on scarcity, especially for the strongest-performing asset among them. For me, Bitcoin is that asset.

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

This also brings us back to the dollar viewpoint I proposed last week.

Druckenmiller is right: the government propping up a certain price against fundamentals will ultimately fail. However, this does not mean that the government cannot suppress a specific price it targets for a considerable period of time.

If Washington refuses to genuinely cut spending, then among the politically choosable options, suppressing long-term yields and allowing the dollar to weaken may already be a relatively low-cost option.

The correct solution is, of course, to implement a more conservative and sustainable fiscal policy. However, because this path is politically difficult to realize, with the current level of U.S. debt, allowing long-term yields to spiral out of control may quickly trigger a more direct crisis in the Treasury market.

Both the financial repression of suppressing long-term interest rates through policy and a weakening dollar are not ideal outcomes, but they remain more acceptable than letting the U.S. government’s financing system rapidly fall into disorder under market shocks.

This is why the dollar will become a pressure relief valve. The Treasury and the Federal Reserve can suppress long-term yields, but they cannot make fiscal imbalances disappear into thin air. The costs of adjustments will inevitably shift elsewhere, and a weaker currency is a politically more palatable choice.

Therefore, I do not believe that the dollar index dropping to the high points of the 60s or the low points of the 70s is an inconceivable extreme outcome. At that time, the dollar would fall to lows not seen since modern times, but from a longer historical perspective, it would not be unprecedented.

Bitcoin has repeatedly benefited in past weak dollar environments, but it has never experienced a period where the dollar index has trend significantly down to this level. Bitcoin was born after the dollar's low point in 2008, and its entire history has been during a period of the dollar recovering from that low or being significantly above that level.

Thus, a trend-setting new low for the dollar would represent 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 grow, it will attract a higher share of this pool of funds.

Meanwhile, AI is making technology and product supply more abundant, also making it harder for many traditional companies' moats to be maintained long-term. In contrast, Bitcoin’s scarcity cannot be replicated or diluted by competitors, which will further increase its appeal.

The most explosive scenario is when these forces begin to work simultaneously: a global increase in capital seeking scarce assets; with Bitcoin continuing to outperform other scarce monetary assets, the share of funds it attracts continues to rise; and Strive further amplifies the elasticity brought by Bitcoin's rise through its capital structure.

These driving forces are not independent of each other; they will intersect and accumulate.

This is what I see as the “home run scenario”: the dollar weakens, policymakers become increasingly proactive in suppressing long-term Treasury yields, AI continues to weaken the scarcity of traditional companies’ moats, Bitcoin re-emerges as the strongest performing asset among scarce monetary assets, while Strive is prepared to amplify Bitcoin's performance in this environment as much as possible.

If the bond market triggers a brief decline in Bitcoin during this process, I hope to buy heavily; if Bitcoin prices in the terminal policy outcomes in advance without a significant correction, I hope to have already established my positions.

Druckenmiller calls on Washington at the end of the article to “let the bond market speak.” I share his warning and, like him, feel frustrated that Washington is unwilling to address fundamental problems, leaving the costs for future generations.

However, the bond market must issue a stronger warning to potentially force policymakers to make interventions on a sufficiently large scale. When that moment arrives, they are more likely to choose to suppress that voice rather than undertake a fiscal restructuring that could solve the problem at its root.

The path I've observed for many years is becoming increasingly clear: the 10-year Treasury yield enters the 5.25%—5.85% resistance range, the narrative in the Treasury market shifts toward crisis, and Washington is forced to genuinely invest large-scale funds, while the pressure that should manifest in long-term yields gets transferred to the dollar, accelerating the dollar's long-term downward trend.

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

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