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ELI5 the U.S. bond buyback announced recently and why did it make the price of Bitcoin skyrocket? (lemmy.world)
submitted 1 day ago by to c/explainlikeimfive@lemmy.world
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Sorry for the compound-sentence question.

The first part is in reference to this story which I've seen in a few different publications now.

Today, I happened to look up the price of Bitcoin (because it was relevant to a conversation I was having) and found it had shot up recently and was now at about $77,400 (up from the $63,000 when I last checked). Doing a little bit of searching, it seemed like the reason was the bond buyback.

(Sorry also for the sensationalistic hype article. I'm about as critical of blockchain snake oil as anyone can be. But I didn't find a better article about why it affected the price of Bitcoin.)

My questions are, in simple terms:

  • Is it roughly correct that buying a U.S. Treasury bond is loaning the U.S. money?
  • And that this story about bonds is basically saying that the U.S. government is "working on paying off its debts" (to bond holders)?
  • How is the interest rate on bonds decided?
  • What are bond "yields" exactly? (Is that just the same as the interest rate on bonds?)
  • Why are yields skyrocketing?
  • What reason does the treasury secretary give for buying back bonds?
  • Are there probable hidden ulterior motives for doing so? If so, what are they?
  • It seems like the idea to buy back bonds came from the White House, so this is probably a MAGA thing, yes? (Or is it more bipartisan than that?)
  • Who (if anyone) thinks the buyback is a bad idea and why?
  • Why are the blockchain bros so excited? What do they think this has to do with cryptocurrencies?

Thank you in advance, people! I like to think I know a fair amount about a fair amount, but finance (let alone fake blockchain Libertarian fairy tail finance) definitely isn't my strong suit, and I'm curious to know more about the dynamics at play here and where they're likely to lead.

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[–] 6 points 22 hours ago* (last edited 21 hours ago)

Christ that's a lot of questions. I can answer the one in the title though - crypto and other stores of value like gold are seen as hedges against inflation (even if the dollar gets weaker, gold stays as valuable, and crypto has the reputation of being "digital gold".

Bond buybacks are basically the federal reserve printing money so the us doesn't have to try to find buyers for its bonds, and printing money creates inflationary pressure. Thus causing people to flock to inflation hedges.

Also for what its worth, the federal reserve is independent of the white house, at least on paper. Not to say some stuff couldnt be happening behind the scenes.

Edit: ok ill answer a few more.

Bond yields are the interest you have to pay on them if you issue them/ the interest you receive if you buy them. The prices are set by the free market, so when its hard to find buyers (like to) the us government (and tech companies) have to offer higher yields

Yes, buying a us treasury bond is exactly lending the federal government money

Yields are skyrocketing due to 2 factors id say. One is that, as the us gets more and more indebted, some prospective bond buyers are starting to get a little nervous about the us governments ability to repay bonds. As far as investments go though its still seen as very safe. Probably a bigger factor right now is that the economy is in a pretty weird place due to the ai/data center boom. There's only so many investors out there capable of investing so much money (i.e. buying bonds) and now there are more people than ever trying to borrow money (i.e sell bonds) so naturally the cost of borrowing money is going to jump.

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