The U.S. federal government’s net interest payments on the public debt crossed $1 trillion for the first time in fiscal year 2025 ending September 2025, up from about $970 billion in reported net interest figures and roughly triple the $345 billion paid in FY 2020.
This milestone reflects a national debt exceeding $38 trillion as of late 2025, combined with average interest rates around 3.4% on marketable debt—higher than the low-rate era of the 2010s.
Fiscal Strain and Broader Economic Effects
This level of interest expense consumes a growing share of federal revenue around 19% in FY 2025 and crowds out spending on other priorities like infrastructure, defense, or social programs. Persistent deficits—projected at $2 trillion annually—could push interest costs toward $1.8–$2.2 trillion by 2035, risking a “debt spiral” where borrowing costs compound.
In traditional markets, high debt servicing can pressure Treasury yields currently around 4.1–4.2% for the 10-year note as of late December 2025, potentially limiting the Fed’s ability to cut rates aggressively and contributing to tighter financial conditions.
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Dollar-pegged stablecoins, like USDT, USDC are increasingly backed by short-term U.S. Treasuries. Regulations like the 2025 GENIUS Act mandate high-quality reserves, turning stablecoin issuers into major Treasury holders— Tether alone holds over $135 billion.
Analysts project stablecoin demand could absorb $1–$1.6 trillion in T-bills over the coming years, helping finance U.S. debt as foreign buyers from China reduce holdings. This bolsters dollar dominance via crypto infrastructure and creates symbiotic growth: fiscal needs drive stablecoin adoption, which supports Treasury markets.
Bitcoin as a Hedge
Unsustainable debt raises long-term inflation or devaluation risks, strengthening Bitcoin’s “digital gold” narrative. With fixed supply— 21 million cap, BTC appeals as a non-sovereign store of value amid fiat debasement concerns. Institutional inflows via spot ETFs and corporate holdings continue despite volatility.
Crypto correlates with equities during “risk-off” periods. High interest costs signal fiscal weakness, potentially leading to higher yields, reduced liquidity, or recession fears—all bearish for speculative assets like Bitcoin currently trading around $87,000–$88,000 after pulling back from October highs near $126,000.
Recent market weakness, crypto cap down over $1 trillion since peaks ties partly to funding costs and outflows, amplified by debt-related uncertainty. Overall, $1 trillion in annual interest payments highlights U.S. fiscal challenges but paradoxically creates opportunities for crypto.
Stablecoins help fund the debt, while Bitcoin benefits from hedge demand. Long-term bullish for adoption and dollar-linked crypto; short-term volatile as a risk asset. This dynamic explains why policymakers under the current administration have embraced pro-crypto policies to leverage digital assets for Treasury demand.
Higher Treasury yields; 10-year currently ~4.13–4.15% limit Fed rate cuts and increase funding costs. Crypto, as a risk asset, has shown sensitivity: Bitcoin trades around $87,000–$88,000, down from October highs near $126,000, amid ETF outflows, thin holiday liquidity, and broader market weakness.
Recent volatility includes flash crashes on thin pairs and correlation with “risk-off” moves, where debt uncertainty amplifies sell-offs in speculative assets. This creates downward pressure on crypto prices in risk-averse environments, as seen in recent pullbacks tied to macro fears.
Paradoxically, unsustainable debt levels ~124% of GDP and rising interest costs projected $1.5–$2.2 trillion annually by 2035 bolster crypto’s role in the financial system.
Stablecoins as Treasury Demand Engine
Major issuers like Tether ~$120–$135 billion in Treasuries and Circle are already significant buyers of short-term U.S. debt. With regulations e.g., advancing frameworks like the GENIUS Act mandating high-quality reserves, stablecoin growth could drive $1–$1.6 trillion in T-bill demand over the next few years—potentially absorbing much of new issuance and replacing retreating foreign buyers.
This symbiotic relationship: U.S. fiscal needs fuel stablecoin adoption, reinforcing dollar dominance via on-chain infrastructure. Bitcoin fixed supply (21M cap) positions BTC as “digital gold” against potential inflation, currency weakening, or debt monetization risks. Institutional narratives strengthen amid $2 trillion annual deficits, with spot ETFs and corporate treasuries providing inflows despite volatility.
Pro-crypto policies under the current administration leverage digital assets to sustain Treasury markets, potentially accelerating mainstream integration. Hedge narrative strengthens; institutional inflows. Overall Crypto is bearish in recessions/funding squeezes. Bullish for adoption, utility in payments/debt financing.
$1 trillion+ interest burdens highlight U.S. fiscal challenges, creating short-term headwinds for crypto as a risk asset but long-term tailwinds via stablecoin Treasury absorption and Bitcoin’s store-of-value appeal. This dynamic supports growing crypto integration into global finance.