Grayscale Research argues that $40 trillion in U.S. public debt could strengthen demand for Bitcoin, Ethereum, and Zcash as alternative assets. While Treasury buybacks may ease rising borrowing costs, Grayscale says they do not resolve the underlying structural budget deficits. The firm also links heavier private borrowing for AI infrastructure to higher interest rates and mounting pressure on Treasury financing.

U.S. public debt has topped $40 trillion as Treasury buybacks aim to address rising borrowing costs, according to Grayscale Research, the research arm of the digital asset manager known for its crypto trusts. The Treasury announced larger purchases of long-maturity bonds last week, while Grayscale's Zach Pandl, the firm's head of research, noted that structural deficits remain unresolved. Grayscale expects the debt burden to push investors toward Bitcoin, Ethereum, and Zcash.

Treasury Buybacks Target Rising Bond Costs

The Treasury plans to bid for long-maturity Treasury notes and bonds in the open market, then retire the securities after purchasing them, reducing the risk-adjusted supply of Treasury bonds.

According to Pandl, the move can act as a mild form of economic stimulus, all else being equal. However, he said the need for buybacks reflects the pressure created by growing government debt. Treasury buyback operations of this kind, which echo Federal Reserve quantitative easing in mechanism but are conducted by the Treasury itself, have been used in recent years largely to manage liquidity in the market for older, less liquid securities.

The Treasury announced the buybacks on the same day it reported that U.S. public debt had crossed $40 trillion. The debt stock has risen almost continuously since the global financial crisis.

Private Borrowing Adds Pressure

Pandl linked the changing debt picture to borrowing conditions across the broader U.S. economy. After the housing bust, the private sector reduced borrowing, which limited the effect of rising government debt on interest rates.

That environment has since changed, according to Grayscale Research. The private sector now borrows heavily to fund the AI buildout, adding demand for financing. Hyperscale data center construction and the power infrastructure to support it have become major capital expenditure lines for large technology companies, adding to overall credit demand.

As a result, increased borrowing has pushed interest rates higher, consistent with textbook economic principles. The Treasury buybacks therefore address rising bond yields rather than the underlying budget deficits.

Grayscale Names Three Digital Assets

Grayscale Research said unchecked government debt growth could weaken confidence in fiat currencies, and it identified physical gold and certain cryptocurrencies as alternative stores of value. The "debasement trade" refers to positioning in scarce or hard-capped assets as a hedge against the erosion of fiat currency value through sustained deficit spending.

Within digital assets, Grayscale said Bitcoin, Ethereum, and Zcash could benefit from what it calls the "debasement trade." Pandl described the buybacks as a response to borrowing costs, while structural deficits remain in place. Zcash is a privacy-focused cryptocurrency, while Bitcoin's fixed 21 million coin supply cap is often cited in this framing.

Grayscale's key takeaway centers on the distinction between managing bond-market pressure and addressing the budget deficit itself. The research identifies Bitcoin, Ethereum, and Zcash among the digital assets tied to that view. What bears watching going forward is whether the Treasury sustains or expands its buyback program and whether fiscal deficits narrow, developments that would inform the conditions underlying Grayscale's argument.