Bitcoin May Surge Following Bessent’s $250 Billion Deregulation Proposal

The Secretary of the Treasury has indicated that changes to banks’ supplementary leverage ratio (SLR) are on the horizon—a shift that could impact Bitcoin markets significantly. Officials have mentioned that regulators are “very close to proceeding” with the rule modification, which could decrease Treasury yields by several basis points.

Potential Boost for Bitcoin

While the proposal still needs to pass through the Federal Reserve as well as other regulatory bodies, the trajectory is evident: exempting or partially exempting US Treasuries from the SLR will enable large financial institutions to utilize their balance sheets for additional purchases of government bonds.

The SLR was established following the financial crisis of 2008-2009, requiring even low-risk assets like Treasuries to maintain a capital charge; major global banks must hold five cents of equity for every dollar of total assets, including central bank reserves. Bessent’s proposed changes aim to alleviate this burden for government bonds, a measure that has been advocated by the industry since the expiration of a temporary pandemic waiver in March 2021. Kevin Fromer, CEO of the Financial Services Forum, believes the current leverage-based system is “outdated” and inconsistent with financial stability and economic growth, stating that adjustments are essential to benefit US taxpayers, capital markets, consumers, businesses, and the economy.

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While authorities present this change as a micro-prudential adjustment, the overall liquidity effects are significant. Market analyst Furkan Yildirim notes that US banks hold approximately $5 trillion in Treasuries; removing the five percent capital reduction would free up around $250 billion of tier-one capital—fifty times the ongoing monthly quantitative-tightening by the Federal Reserve, which stands at $5 billion. “This represents a liquidity boost through regulatory measures,” he explains, arguing that this change “lowers yields without increasing the money supply,” a scenario typically leading investors to seek greater risks.

The market has begun to respond to these expectations. After Bessent’s statements and President Trump’s announcement to postpone a threatened 50 percent tariff on EU imports until July 9, benchmark ten-year yields dipped below 3.95 percent. Yildirim posits that “any decline in the ten-year yield effectively promotes Bitcoin,” as “liquidity does not vanish—it merely looks for alternative investment opportunities.” He emphasizes that the change in banking capital regulations signifies how pressured policymakers feel regarding deficits, debt obligations, and political considerations.

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However, skepticism remains. Critics like Peter Boockvar from Bleakley Advisory indicate that banks’ interest in taking on duration risk has not fully rebounded since the regional bank failures of 2023; if dealers are unable to manage the additional Treasury supply, the Federal Reserve might need to re-enter the bond market. While the Bank Policy Institute welcomes the relief from SLR constraints, it stresses that it should coincide with a broader reevaluation of post-crisis measures, such as the GSIB surcharge, to sustainably increase balance-sheet capacity.

Nonetheless, Bitcoin tends to react swiftly to dollar-liquidity indicators. Falling Treasury yields lessen the appeal of money-market funds yielding over five percent, freeing up capital that has been stagnant in cash-equivalent investments since 2022. On-chain data highlighted by Yildirim indicates that over-the-counter (OTC) desk inventories have decreased to 115,000 BTC, suggesting that substantial buyers are procuring coins directly. As that supply diminishes, these desks will need to replenish their stock from public exchanges, a process that tightens available supply and typically enhances upward price movements.

Ultimately, while the SLR modification is not a complete solution to America’s fiscal challenges, it alleviates a short-term balance-sheet constraint and reduces the opportunity cost associated with holding non-yielding securities. Yildirim articulates, “A deregulation that stabilizes government funding while nudging investors toward risk assets acts as an inherent support for Bitcoin.” Thus, this regulatory change serves a function similar to shadow quantitative easing, emerging at a time when the Federal Reserve faces limitations due to persistent inflation and political pressures—adding yet another structural influence in favor of Bitcoin.

As of the latest update, BTC was trading at $108,790.

Featured image created with DALL.E, chart from TradingView.com