The US national debt has reached a new all-time high. The United States now owes $38.5 trillion, the largest amount ever owed to domestic and foreign creditors. While the crypto market enters the new year with renewed momentum, US public finances are moving in the same direction—with very different consequences. This combination could prove crucial for bitcoin and other cryptocurrencies.

Debt exceeds economic output

The headline figure alone does not tell the full story. What matters is the comparison with economic output. US gross domestic product stands at roughly $30 trillion, pushing the debt-to-GDP ratio above 120 percent. In simple terms, the government borrows $120 for every $100 it generates annually.

More than 70 percent of US debt is held by domestic investors. The remainder is owned by foreign creditors, with Japan, China, and the United Kingdom among the largest holders.

Pandemic spending and interest costs above $1 trillion

The surge in debt has several drivers. Massive pandemic-era stimulus played a major role, alongside long-term fiscal spending on infrastructure, defense, and social programs. Another critical figure stands out: annual interest costs now exceed $1 trillion, surpassing total US defense spending.

Why this is bullish for bitcoin

Paradoxically, high government debt is often viewed as supportive for assets such as bitcoin and gold. The reason is straightforward—governments in heavily indebted positions tend to pressure central banks to keep interest rates low, reducing the cost of servicing debt.

President Donald Trump repeatedly called on the Federal Reserve to cut rates toward 1 percent or lower. Historically, low interest rates favor risk assets and alternative stores of value, including bitcoin, gold, and broader investor risk appetite.

Fiscal dominance and pressure on the Fed

Prominent figures in US economic policy have warned about this scenario. Former Treasury Secretary and Fed Chair Janet Yellen recently noted that rising debt could push the central bank to prioritize low rates to manage debt servicing costs rather than fight inflation. This dynamic is known as fiscal dominance.

As debt levels rise, governments must borrow more. Investors demand higher yields to compensate for increased risk. At a certain point, central banks step in as buyers of last resort, purchasing short-term government bonds to maintain market liquidity.

The result is a steeper yield curve—short-term yields remain suppressed while long-term yields rise.

Currency debasement an old story revisited

Concerns over currency debasement are nothing new. History offers a well-known example from the Roman Empire, which reduced the precious metal content of its coins to finance growing expenditures. The outcome was high inflation and a loss of trust in the currency.

A similar mechanism operates today. When governments face persistently high debt, central banks often expand the money supply to help finance it. While this may ease liquidity pressures in the short term, it erodes purchasing power over time.

Bitcoin as digital gold

In this environment, interest in alternative assets is rising. Bitcoin, with its capped supply, is increasingly viewed as a digital version of gold. Analysts believe that this year bitcoin could close the gap with gold in how investors price currency debasement risks.

Record US debt is therefore more than a macroeconomic statistic. For the crypto market, it is another signal that the narrative of bitcoin as a hedge against inflation and fiscal excess is far from over.

Sources:

https://www.coindesk.com/markets/2026/01/06/here-s-why-bitcoin-and-major-tokens-are-seeing-a-strong-start-to-2026

https://www.jec.senate.gov/public/index.cfm/republicans/debt-dashboard

https://www.unrv.com/economy/currency-debasement.php

https://www.coindesk.com/markets/2026/01/06/u-s-national-debt-reaches-new-high-of-usd38-5-trillion