How a Treasury buyback tweak helped bitcoin surge 25% to nearly $80,000 in days

A relatively small change in the U.S. government bond market helped set off one of bitcoin's sharpest rallies in months this week, as falling long-term yields gave traders an excuse to unwind a record pile of bearish crypto bets.

The U.S. Treasury said it would double the size of its buyback operations in the longest-dated government bonds, to $4 billion from $2 billion per operation. The announcement helped push the 30-year Treasury yield down from 5.34%, a 19-year high, to around 5.19%.

Bitcoin jumped about 25% since Wednesday and surged past $78,000 as of Asian morning hours Saturday, with roughly $4 billion in bearish crypto positions liquidated on Thursday and Friday as prices rose.

A Treasury buyback involves the government buying previously issued bonds back from investors, a program mainly designed to make older Treasury securities easier to trade and help the government manage the composition of its debt. Importantly, this is no quantitative easing, where the Federal Reserve creates reserves to purchase assets in an effort to loosen financial conditions.

"Mechanically, a buyback is not QE but primarily a tool for managing liquidity and the composition of Treasury liabilities," said Jeff Ko, chief analyst at CoinEx, in a note to CoinDesk. "Given the program's relative small size, I would read this more as a signal, a soft policy put on the long end."