Bitcoin correction mirrors past cycle bottoms as US debt tops $40 trillion

Bitcoin's correction tracks historical cyclical bottom patterns as US federal debt crossed $40 trillion, reinforcing the case for scarce assets.

Ray Dalio, founder of Bridgewater Associates, said in an Aug. 21 LinkedIn analysis that "non-government-produced monies like gold and bitcoin" should perform well as debt, weakening bond demand, and monetary expansion erode currencies.

Total US public debt reached $40.05 trillion on Aug. 18, Treasury figures showed. The Congressional Budget Office projects a $1.9 trillion fiscal 2026 deficit, with federal outlays of $7.4 trillion against revenue of $5.6 trillion. Dalio expects debt to reach $55-60 trillion within a decade, a trajectory he said could trigger a full debt crisis within three years, give or take two.

Dalio recommends allocating 10 to 15 percent of a portfolio to gold plus a small bitcoin position, arguing that scarce assets with predetermined issuance offer protection against currency debasement. "Having a small percentage of one's money in gold can reduce a portfolio's risk, and I think it would also raise its return," he concluded.

Treasury Buyback Expansion Adds to Debasement Concerns

The Treasury Department expanded long-term liquidity-support buybacks on Aug. 19, increasing maximum purchase sizes for certain 10- to 30-year securities from $2 billion to at least $4 billion per operation, effective Sept. 9 through Nov. 4. The move revived discussion of the debasement trade, under which investors reduce exposure to currencies and bonds while favoring scarce assets. Bitcoin advanced as the buyback announcement drew attention to dollar weakness, although Treasury repurchases do not constitute Federal Reserve quantitative easing and do not create money by themselves.

Dalio's Measured Endorsement of Bitcoin

Dalio's support for bitcoin remains conditional. He has identified potential vulnerabilities in the network's code, government controls, transaction transparency, and the possibility that central banks may remain unwilling to treat it as a reserve asset. His current position marks a shift from 2020, when he questioned bitcoin's usefulness as money and warned that governments could restrict it if it threatened sovereign currencies.

Bitcoin's predetermined issuance and maximum supply of 21 million coins underpin its scarcity, portability, self-custody, and resistance to monetary debasement. However, substantial volatility prevents it from providing consistent short-term stability, and Dalio has noted that bitcoin's correlation with technology stocks weakens its safe-haven appeal during market stress.

The correction's alignment with historical cyclical bottom patterns, combined with the macro backdrop of rising debt and monetary expansion, suggests the current drawdown may represent a buying opportunity for long-term holders. The next key test will be whether bitcoin can hold its historically reliable technical floors as liquidation events continue to test market depth.

This article is for informational purposes only and does not constitute investment advice.