Bitcoin reclaims $80,000 as Treasury policy, short squeeze fuel 23% rally

Bitcoin briefly broke above $81,000 before easing back toward $79,000 on Wednesday, according to multiple sources, marking its return above the key $80,000 level. The move represented a recovery from a prolonged weakness that saw Bitcoin fall from around $95,000 in January to below $60,000 in late June.

The rally was driven by a confluence of macro, regulatory and market-structure factors. The primary catalyst came from the U.S. Treasury's announcement that it would double the size of buybacks for longer-dated government debt from $2 billion to at least $4 billion per operation, after long-term yields hit their highest levels since 2007. The move pushed yields lower and weakened the dollar, creating a more favorable environment for risk assets.

"Debasement trade" flows intensified as investors rotated into scarce assets amid concerns about U.S. fiscal sustainability and currency depreciation. Bitcoin and gold both benefited, sources reported.

Alongside the macro shift, a regulatory push added to the rally. President Donald Trump used an August 19 White House gathering with crypto and financial executives to urge Congress to advance the Clarity Act, while fresh SEC rulemaking efforts raised expectations of a clearer U.S. framework for digital assets.

The speed of the rally was amplified by the unwinding of bearish positions. Traders had built significant short bets while Bitcoin traded around the mid-$60,000 range. When the price broke higher, more than $4 billion in bearish crypto positions were liquidated, according to a source citing market data.

"Bitcoin's move last week was driven by a clear improvement in market liquidity, strong institutional demand and the unwinding of short positions," Saeed Al-Marri, CEO at Ethra, told a news outlet. "The rally was not caused by one factor alone."

Tal Fromchenko, founder of LEVERAGED, said three catalysts landed in the same week: the SEC proposal, White House support for the Clarity Act and the subsequent short squeeze. "Layer on renewed 'debasement trade' flows, with investors rotating into BTC and gold on fiscal and Treasury concerns. This is how you get a 20%+ move in a matter of days."

Institutional participation was also evident in ETF flows. U.S. spot Bitcoin ETFs attracted roughly $1.9 billion in net inflows over five trading days, their strongest week in around 10 months, according to a source. That provided a durable source of demand alongside the short squeeze.

Todd Ault, Founder of Ault Blockchain, noted the combination of factors. "A lot of things lined up at once. The dollar weakened, the Treasury stepped into the bond market, too many people were leaning short, and President Trump came out strongly behind getting crypto legislation done."

Despite the rapid advance, several sources cautioned that the rally may need to consolidate before extending further. Fromchenko said $80,000 is a level where profit-taking tends to appear, and he expects a pullback or consolidation before the next leg higher. Al-Marri said he expects a pause but sees any pullback as a correction within a broader uptrend.

One source quoted the owner of 1win as calling the move "a strong rebound rather than a new market cycle," noting that a rally driven partly by liquidations is powerful but that source of buying pressure is temporary.

Bitcoin remains down year-to-date despite its recent surge, and key risks include renewed ETF outflows, higher long-term yields or a deterioration in broader risk appetite, according to a Nasdaq report. Ault said the key question is whether the U.S. regulatory framework can open the door to further capital flows. "If the U.S. finally gives Bitcoin and DeFi a real regulatory framework, you open the door to a tremendous amount of capital that has been waiting on the sidelines."