The Downfall of the Dollar: US Debt, Inflation and What It Means for Bitcoin

The United States national debt crossed $36 trillion in 2025. The federal government spends approximately $1 trillion per year on interest payments alone — more than the entire defence budget. The dollar has lost approximately 97% of its purchasing power since the Federal Reserve was established in 1913.

These are not fringe talking points. They are fiscal realities that have moved from heterodox economic concerns to mainstream institutional conversation. And they are a core part of the investment thesis for Bitcoin as a long-term store of value.

Understanding the US Debt Situation

The US government runs a structural deficit — it consistently spends more than it collects in taxes. The gap is funded by issuing Treasury bonds, which must be repaid with interest. As the debt grows, interest payments consume a larger share of the budget, leaving less for other spending without further borrowing.

In 2024, US interest payments exceeded $1 trillion annually for the first time. The Congressional Budget Office projects these payments will continue growing as existing bonds mature and are refinanced at current higher interest rates. The debt-to-GDP ratio now exceeds 120% — a level that historically correlates with financial stress for developed economies.

The ultimate backstop for US debt is the Federal Reserve’s ability to purchase bonds by creating new dollars. This monetisation of debt reduces the real value of existing dollars — a process commonly called inflation.

Inflation and Purchasing Power

Between 2020 and 2023, US inflation reached 40-year highs, peaking at 9.1% annually in June 2022. UK inflation simultaneously peaked at 11.1%. This erosion of purchasing power — the real cost of keeping money in cash — accelerated interest in inflation-resistant assets.

Traditional inflation hedges like gold, property, and inflation-linked bonds have served this role for decades. Bitcoin proponents argue it offers superior inflation protection: a mathematically fixed supply of 21 million coins, no central bank that can increase issuance, and increasing scarcity over time through the halving mechanism.

The Bitcoin Reserve Movement

In 2024–2025, a significant political shift occurred. Several US states passed Bitcoin reserve bills, allowing state treasuries to hold Bitcoin as a reserve asset. El Salvador made Bitcoin legal tender. And most significantly, the Trump administration established a Strategic Bitcoin Reserve — directing the federal government to hold Bitcoin seized through law enforcement as a national reserve asset.