Why are some investors choosing Bitcoin over government bonds?
Historically, sovereign bonds like the US Treasurys, Japanese government bonds and German Bunds have been go-to assets for risk-averse investors. They are usually perceived to be minimal-risk assets offering steady returns. However, since the emergence of Bitcoin 13 years ago, the narrative of Bitcoin as an alternative to bonds has been gradually growing in the minds of investors.
The interplay between the Federal Reserve’s balance sheet and the M1 and M2 money supply is also a significant consideration to help understand why some investors are shifting to Bitcoin (BTC).
- The M1 money supply is a measure of the total amount of money readily available in an economy. It includes the most liquid assets: cash, demand deposits (checking accounts) and other similar checkable deposits.
- The M2 money supply is a wider measure of money supply than M1. It includes all of the M1 assets, combined with savings deposits, retail money market funds (MMFs) and small-time deposits.
The US Federal Reserve’s actions on expanding and shrinking its $6.69-trillion balance sheet directly influence the M1 and M2 supply, which in turn affect inflation, bond yields and investor confidence in fiat assets. When the Fed adds or removes money, it changes how much cash (M1) and savings (M2) are available. These changes affect inflation, how much interest bonds pay and how much people trust traditional (fiat) money.
In the past few years, the Fed has kept the federal funds rate in a high range between 4% and 5% and has also signaled that rate cuts might not be necessarily imminent. On May 26, 2025, Moody’s downgraded the US debt rating from AAA to AA1, citing fiscal instability and political dysfunction.
Additionally, the Japanese bond crisis of 2024-2025 exemplified how a shift in the relationship between bond demand and yields, amplified by US tariff policies, can impact investor sentiment and the safe haven status of government debt. In this macroeconomic scenario, Bitcoin is increasingly cementing its position as a hedge against inflation.
As of June 13, BTC has outperformed the S&P 500, gold and the Nasdaq 100 by posting 375.5% gains over a three-year period, as compared to 59.4%, 85.3% and 86.17%, respectively.
Did you know? The Bitcoin Core developers have decided to increase the OP_RETURN data transaction limit from 80 bytes to 4 megabytes, as confirmed in an update on GitHub. Although this update to the code through the Bitcoin Core 30 release has sparked a debate within the community, it is aimed at addressing concerns with data storage techniques and improving the unspent transaction output (UTXO) set. This release is scheduled to go live in October 2025.
The rise of Bitcoin’s prominence in the modern investor’s portfolio
The US Securities and Exchange Commission’s approval of the spot Bitcoin exchange-traded funds (ETFs) on Jan. 10, 2024, was a watershed moment for Bitcoin’s role in the portfolio of modern investors, both traditional and retail. The 12 Bitcoin spot ETFs trading in the US have total assets under management (AUM) of $132.5 billion as of June 11, 2025, per data from Bitbo. It’s a monumental figure considering these ETFs have only been trading for over 300 days.
Below is the complete timeline of the US SEC approving the listing of Bitcoin spot ETFs:
- 2013: Cameron and Tyler Winklevoss, founders of the Gemini cryptocurrency exchange, file the first-ever spot Bitcoin ETF application with the SEC. Grayscale launches the Bitcoin Investment Trust.
- 2017: Citing concerns about the asset’s market maturity and manipulation, the SEC rejects the Winklevoss ETF application.
- 2018: The SEC rejects the refiled ETF application from the Winklevoss twins by citing inadequate market controls.
- 2020: Grayscale converts its trust into an SEC reporting entity, aiming to increase the transparency of funds.
- 2021: The SEC approves the first US Bitcoin futures ETF application filed by ProShares while continuing to reject spot ETF applications.
- 2023: Grayscale sues the SEC after the rejection of its application to convert its Bitcoin trust into a spot ETF. A US Appeals Court rules that the SEC failed to justify the rejection, thus forcing it to reconsider the application.
- Mid-2023: The world’s largest asset manager, BlackRock, files for a spot Bitcoin ETF. A wave of spot Bitcoin ETF applications follows from firms such as Fidelity, Franklin Templeton, WisdomTree and others.
- Jan. 10, 2024: The SEC approves 11 spot Bitcoin ETFs, which begin trading on US exchanges the following day.
Since then, the inflows and outflows of these ETFs have varied along with the sentiment of the market, but they have broken multiple records and are expected to continue to do so due to institutional interest in the asset. The chart below shows the daily…
cointelegraph.com