Fresh data from the U.S. Treasury reveals the cumulative deficit for fiscal 2026 has ballooned to $1.8 trillion. This enormous fiscal gap, combined with sharply rising bond yields, is creating a highly unstable trading environment for Bitcoin, which is currently experiencing significant volatility.

Bitcoin's price has retreated roughly 50% from its all-time high set in October 2025. Despite recent comments from Robert Mitchnick, the digital assets chief at BlackRock (BLK.US), who noted a "subtle but clear positive shift" in market sentiment and reiterated that Bitcoin has historically closed at higher prices after each of its five complete bull-bear cycles, the price remains trapped in a low-level trading range. Notably, BlackRock's spot Bitcoin ETF (IBIT) holds nearly 750,000 BTC, valued at approximately $50 billion. Meanwhile, U.S. spot Bitcoin ETFs recorded net inflows exceeding $850 million last week, their best weekly performance since mid-April.

However, these positive signals from institutional capital flows have not translated into meaningful upward momentum. The market appears calm on the surface but is turbulent underneath. Investors are widely anticipating a so-called "ultimate catalyst" to break the stalemate, yet macroeconomic uncertainties are intensifying anxiety, keeping the price constrained by broader economic variables even with major institutional backing.

One of the core drivers shifting market sentiment from "calm" to "tense" is the continued expansion of the U.S. fiscal deficit and the resulting expectations of increased money creation. The Treasury's latest data shows the federal budget deficit for July alone reached $432 billion, the largest monthly shortfall since March 2021. This pushed the cumulative fiscal 2026 deficit to $1.8 trillion, second only to the extreme highs during the pandemic in 2020, with total federal debt approaching $40 trillion.

In this context, many crypto investors believe that when government spending vastly exceeds revenue, it must rely on debt issuance to finance the gap. If the private sector's capacity to absorb this debt is limited, the Federal Reserve could ultimately be forced to restart balance sheet expansion. Prominent crypto investor Anthony Pompliano stated on Fox Business that disordered government fiscal management will force continuous money printing, and assets like Bitcoin, gold, real estate, and stocks will benefit long-term from fiat currency depreciation trends. He even predicted that Bitcoin's average annual growth could maintain around 30% over the next two decades or more.

Arthur Hayes, co-founder of BitMEX, also noted in recent analysis that the stronger the monetary expansion, the more solid the foundation for Bitcoin's valuation to move higher. He revealed he is increasing his allocation to Bitcoin, physical gold, and gold mining stocks. This investment logic, based on fiscal dominance theory, is strengthening the long-term belief in Bitcoin as an inflation hedge.

Meanwhile, the bond market is flashing a distinctly opposite risk signal, serving as another major macro variable suppressing risk assets. Global bond yields have risen sharply this week, with the U.S. 30-year Treasury yield climbing to its highest level since 2002, the 20-year reaching a post-2006 high, and the benchmark 10-year touching levels not seen since 2007. Traders attribute this yield surge to a combination of factors, including the expanding fiscal deficit, financing needs from AI infrastructure construction, persistently high international oil prices, and policy path uncertainty surrounding new Fed Chair Kevin Warsh.

According to data compiled by WoofunAI, Sean Farrell, head of digital asset strategy at Fundstrat, pointed out that Bitcoin's 30-day realized volatility has fallen to one of the lowest ranges in its history. He analyzed eight previous periods of similarly extreme low volatility and found that the median absolute price movement in the following 60 days was 30.2%, with advances and declines each occurring four times. This indicates the metric only predicts the intensity of volatility, not its direction. Based on the current price of approximately $64,000, a 30% gain could push the price toward $83,200, while an equal decline could send it down to $44,800.

Farrell emphasized that the recent Bitcoin rebound is partly driven by short covering rather than large-scale new capital inflows. Since Friday evening, Bitcoin-denominated futures open interest has decreased by about 8%. He specifically identified "the continued rise in real bond yields" as the key variable that could break the current low-volatility regime. The strategy team at Yardeni Research also stated in a report that while panic mechanisms have not yet been triggered, they are closely monitoring whether bond market participants will take substantive action. They noted that U.S. Treasury yields remain in the normal 4% to 5% range but are approaching the upper boundary, warranting heightened vigilance.

The so-called "bond vigilantes"—market forces that sell government bonds to push yields higher and force policy changes from governments or central banks—could cause high-valuation risk assets to bear the brunt once they act. The sustained climb in bond yields has significantly reshaped the focus of the crypto market, with traders now paying more attention to the Treasury market than to the Fed's short-term rate path. Analysts at crypto exchange Bitunix noted that the market's core concern is no longer limited to whether the Fed will hike or cut rates, but is increasingly focused on whether long-term Treasury yields will continue their upward trend, whether geopolitical risks will evolve into sustained energy supply shocks, whether inflationary pressures will resurface, and whether global risk premiums will widen further.

If the 30-year Treasury yield remains elevated while energy prices rise due to geopolitical tensions, stocks, cryptocurrencies, and other high-valuation assets could face systemic pressure. In this two-way risk environment, market participants are gradually preparing mentally for a potential deep correction. Robin Singh, CEO of crypto tax service Koinly, said that with the U.S. midterm elections approaching, another sharp Bitcoin decline is not inconceivable, with a pullback to the $55,000 range being a reasonable scenario. He believes that historically, markets often need to undergo a thorough cleansing—a selloff that forces the last remaining bulls to give up—before a cycle bottom can be confirmed.

In summary, the monetary expansion narrative fueled by the massive fiscal deficit provides medium-to-long-term upward momentum for Bitcoin, while the rising bond yields reflecting higher real capital costs are exerting substantial downward pressure on risk assets. The current Bitcoin market shows a pattern of "sellers exhausted, buyers waiting on the sidelines," with leveraged funds already positioning for a rebound, making the market's internal structure inherently unstable. Historical data suggests the probability of an approximately 30% absolute price swing within the next 60 days has increased significantly. Regardless of the eventual direction, market participants must remain highly vigilant and prepare appropriate risk management measures. This marks the second time since the 2022 macro liquidity tightening that Bitcoin faces a dramatic repricing risk driven primarily by traditional financial market variables.