US Debt: Grayscale Identifies 3 Cryptos That Could Benefit

Grayscale believes that the evolution of US debt would favor Bitcoin, Ether, and Zcash. These three cryptocurrencies could benefit from significant demand for assets independent of fiat currencies. Indeed, this theory comes as federal debt has just surpassed $40 trillion. However, it does not represent a current projection. An increase in rates triggered by the financing needs of the United States would also penalize the crypto ecosystem in the short term.

In brief

• Grayscale bets on Bitcoin, Ether, and Zcash in light of rising US debt.
• US public debt exceeds $40 trillion, raising concerns about monetary dilution.
• Treasury bond buybacks support liquidity without addressing the causes of indebtedness.
• Rising debt could favor cryptos in the long term, but high rates may penalize them in the short term.

Grayscale Selects BTC, ETH, and ZEC

Grayscale's head of research, Zach Pandl, presented this analysis on August 26. For him, uncontrolled growth in public debt can undermine confidence in national currencies and encourage investors to seek alternative stores of value.

He outlines Grayscale's selection:

In cryptocurrencies, we believe that the hedge against monetary dilution will primarily benefit Bitcoin, Ether, and Zcash.

The characteristics of the chosen assets are as follows:

• Bitcoin has a maximum supply capped at 21 million BTC;
• Ether is used for transaction payments and securing Ethereum;
• Zcash combines a limited supply of 21 million ZEC with optional confidential transactions.

This hedge against monetary dilution (debasement trade) is a strategy aimed at acquiring rare assets to protect against the loss of purchasing power of currencies. Historically, this theory has concerned gold. Grayscale believes that certain cryptos now fulfill a similar function.

However, the three cryptos do not share the same specifics. Indeed, Bitcoin and Zcash apply a predetermined issuance, while Ether does not have an absolute cap. Its supply primarily depends on new emissions granted to validators and the destruction of a portion of fees.

Predetermined scarcity does not guarantee price stability either. Thus, BTC, ETH, and ZEC remain volatile. Their progression also depends on available liquidity, regulation, institutional flows, and investors' risk appetite.

Treasury Buybacks Do Not Necessarily Reduce This Liability

The total public debt of the United States surpassed $40 trillion on August 18. Of this amount, nearly $32.266 trillion is held by the public, while $7.782 trillion corresponds to claims between various federal structures.

The US Treasury published, a few days later, an increase in its long-term bond buybacks. Starting September 9, the cap will rise from at least $2 to $4 billion per transaction for securities maturing between 10 and 30 years.

Through these acquisitions, the Treasury can remove older, less liquid bonds and continue to issue new securities. They facilitate operations in the secondary market and reduce some tensions on yields.

However, this transaction does not equate to a repayment of debt. The Treasury's statement explicitly presents the measure as support for liquidity in the bond market. It neither rectifies the budget deficit nor the gap between federal spending and revenue. Grayscale believes that these buybacks address the symptoms but not the root cause of the problem.

Debt Supports Grayscale's Thesis Without Guaranteeing an Increase

The Congressional Budget Office projects a federal deficit of $1.9 trillion for the ongoing 2026 fiscal year. This amount would reach $3.1 trillion by 2036 if current legislative regulations remain largely unchanged.

Publicly held debt could rise from 101% of gross domestic product in 2026 to 120% in 2036, according to CBO projections. Thus, interest-related charges would justify a significant part of this evolution.

This progression may consolidate the search for rare assets. It may also create the opposite effect in the short term. If the profusion of bond emissions keeps yields at a high level, risk-free investments become more attractive, and the cost of capital increases. Investors may then reduce their exposure to cryptos.

Scheduled for November 4, the next quarterly announcement from the US Treasury will clarify the progress of the buyback program. Bond yields, the dollar, and flows into crypto products will help verify if the scenario indicated by Grayscale is truly beginning to materialize.