“The market read this as a quiet form of quantitative easing, a move that weakens the dollar and sends scarce, debasement-hedge assets like Bitcoin higher,” Matt Mena, a senior strategist at crypto research firm 21Shares, told Fortune in a written statement.
Investors quickly piled into those assets, which in turn forced short sellers to cover roughly $1.5 billion in positions by buying Bitcoin in the market. That included purchases of about $700 million in a single minute, an event that 21Shares said may have amounted to the largest short squeeze in Bitcoin’s history.
The rally follows months of weak price action as Bitcoin struggled to recover from a brutal crash last October. Since that rout, which triggered more than $19 billion in liquidations, Bitcoin has fallen about 40% from the $115,000 level where it traded at the time, according to CoinGecko.
Alongside the Treasury announcement, Mena said investors have increasingly priced in a pause in rate hikes over the past two months. U.S. spot Bitcoin ETFs drew roughly $1 billion in inflows during the first two weeks of August, adding another source of demand for the cryptocurrency.
Bitcoin wasn’t the only cryptocurrency to rally following the Treasury announcement. Ethereum and Zcash led major tokens, each rising 9% in the past 24 hours.
The rally may signal that Bitcoin’s bear market has moved past its worst phase, according to Zach Pandl, Grayscale’s head of research.
“Our best guess is that Bitcoin potentially bottomed at $58,000 earlier this summer… and [that] it’s a compelling time for investors with longer-term horizons to be allocating to Bitcoin and the crypto asset class,” he said.
Pandl said the Treasury’s move highlighted deeper fiscal pressures and could prompt investors to consider alternative stores of value. The national debt is expected to reach $40 trillion before the end of the month, while the U.S. war with Iran has driven inflation higher across the country. Pandl added that recent favorable developments for the crypto industry may have also influenced Bitcoin’s price performance.
On Tuesday, the Securities and Exchange Commission proposed a regulatory framework for crypto assets that could reduce uncertainty as the CLARITY Act remains stalled in Congress. The proposal would exempt eligible crypto firms from certain federal securities rules and make it easier for them to issue tokens and raise capital.
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