The U.S.-listed spot bitcoin BTC exchange-traded funds (ETFs) recorded $667.4 million in net inflows on May 19, the largest single-day total since May 2, signaling renewed institutional interest.

Nearly half of these inflows, $306 million, went into iShares Bitcoin Trust (IBIT), now at $45.9 billion in net inflows, according to data source Farside Investors.

The renewed demand follows bitcoin’s strong price performance, having traded above $100,000 for 11 consecutive days, which has helped restore market confidence.

Additionally, the annualized basis trade, a strategy where investors go long on the spot ETF and simultaneously short bitcoin futures contracts on the CME, has become increasingly attractive with yields approaching 9%, almost double what was seen in April.

According to Velo data, this has sparked a modest uptick in basis trade activity as evidenced by an increase in trading activity in the CME futures.

On Monday, CME futures volumes hit $8.4 billion (roughly 80,000 BTC), the highest since April 23. Meanwhile, open interest stood at 158,000 BTC, up over 30,000 BTC contracts from April’s lows, further underscoring the growing appetite for leveraged and arbitrage strategies.

That said, both both futures volume and open interest remain well below the levels seen when bitcoin reach an all-time high of $109,000 in January, indicating there’s still significant headroom for further growth.

The upswing in the basis suggests the growth may be already happening, bringing back players that left the market early this year when the basis dropped to under 5%.

Recent 13F filings revealed that the Wisconsin State Pension Board exited its ETF position in the first quarter, likely in response to a then-less favorable basis trade environment. However, given that 13F data lags by a quarter and the basis spread has since widened from 5% to nearly 10%, it is plausible that it reentered the market in the second quarter to capitalize on the improved arbitrage opportunity.

There is a popular saying, that goes, «If you want to understand America, watch a pro wrestling match.» Though it may be glib and a little over simplified, it appears to ‘ring’ true, as the U.S. financial markets are now exhibiting traits similar to pro-wrestling’s concept of «kayfabe.»

Kayfabe means an illusion that the in-ring scripted action is real, with the audience buying the same while suspending their belief for entertainment.

A similar dynamic has played out in the financial market for at least a decade, where the U.S. government has repeatedly hit its self-imposed debt ceiling, or borrowing limit, a sign of fiscal crisis. Still, investors continued lending money to the government at ultra-low yields, including during times of stress in the global economy, thereby maintaining the kayfabe that the government is a safe and reliable borrower.

Recently, however, bond market participants have exposed kayfabe, as legendary trader Paul Tudor Jones had warned, weakening the illusion and strengthening the case for investing in assets with haven and store-of-value appeal like bitcoin (BTC) and gold.

Bonds blast the kayfabe

This week’s big news is the U.S. 30-year Treasury yield topping the 5% mark and how it could destabilize financial markets. However, we have been there before in October last year, according to the data source TradingView.

Read more: U.S. 30-Year Treasury Yield Breaches 5% Amid Moody’s Rating Downgrade, Fiscal Concerns

The real story is the spike in yields on the Treasury inflation-protected securities (TIPS). Their principal amount is adjusted for inflation.

The 30-year TIPS yield recently rose above 2.7%, the highest since 2001. In other words, investors demand a yield at least 2.7% greater than inflation in return for loaning money to the government for three decades.

This comes as the consumer price index (CPI) growth continued to slow toward the Fed’s 2% target, and the market-based forward-looking inflation measures like breakevens remain stable in familiar ranges seen since 2022. Plus, the supposedly inflationary U.S.-China tariff war has eased.

Divergence is a clear indicator that investors are seeking the most expensive real yield due to concerns about fiscal policy and not inflation, tariffs, or growth dynamics.

«The world is saying, we don’t trust your long-term fiscal trajectory and we want to be compensated for it,» pseudonymous analyst EndGame Macro said in an explainer on X.

As of May 19, the U.S. national debt, also known as the total public debt, stood at $36.22 trillion. It is projected to rise by $22 trillion over the next 10 years, with debt-to-GDP reaching 156% by 2055, according to analysis conducted by EY’s Quantitative Economics and Statistics (QUEST) practice. The QUEST report also said the burgeoning debt will weigh heavily on economic growth.

Robin Brooks, senior fellow in the Global Economy and Development program at the Brookings Institution, pointed to the five-year forward real interest rate as evidence of bond players questioning the fiscal sustainability.

«The 5y5y forward real interest rate now stands at 2.5%, which is the highest level going all the way back to 2010. Most importantly, it far exceeds levels seen during hawkish Fed episodes, like the 2013 «taper tantrum» or the 2022/23 hiking cycle after the COVID inflation scare,» Brooks said in a Substack post, while noting the stability in the 5y5y forward inflation breakevens.

«That makes it all the more likely that many years of irresponsible fiscal policy are catching up with the U.S, adding urgency to the need to get our fiscal house in order,» Brooks added.

FX-bond correlations are dead

Another sign that the market is waking up to the fact that the emperor has no clothes is the breakdown in the traditional correlation between the foreign exchange (forex) and bond markets.

Typically, rising bond yields boost the appeal of the home currency, causing it to appreciate against other fiat currencies. For example, the EUR/USD has historically closely tracked the spread between yields on German and U.S. two-year government bonds.

But not anymore. The EUR/USD has risen sharply since early April despite the narrowing of the two-year yield differential, led by a sharp rise in the U.S. two-year yield. The breakdown in correlations indicates that concerns over fiscal stability have likely prompted investors to move away from U.S. assets.

The degree of dollar bearishness is evident from the options market, which is now most bullish on EUR/USD since COVID. It’s unusual for the options market to put a greater premium on the upside in euro than the downside, according to Brooks.

Bullish bitcoin and gold

Historically, governments facing fiscal concerns have resorted to inflation and repaying debt by printing more money. They will likely retake the same road, incentivizing demand for hard assets like gold and bitcoin.

«All roads lead to inflation. That’s historically the way every civilization has gotten out is that they inflated away their debts,» Tudor Jones said last year, while naming BTC, gold, and commodities as preferred holdings over longer duration bonds.

Two years ago, Economist Russell Napier voiced a similar opinion, saying, «We need to prepare for an era of increasing financial repression and persistently high inflation.»

Financial repression refers to government policies that direct funds from the private sector to the public sector to help reduce national debt. The scenario is characterized by the inflation rate exceeding the return on savings, capital controls and interest rate caps, all of which could bode well for bitcoin and gold.

Interest rate caps are usually implemented through policies like yield curve control, which has the central bank targeting a specific level for the long bond yields, let’s say 5%. Every time, the yield looks to rise above the said level, the central bank steps up bond purchases, injecting liquidity into the system.

Arthur Hayes, CIO and founder of Maelstrom, has said that yield curve control will eventually be implemented in the U.S., torching a record rally in bitcoin.

Hayes recently said that President Donald Trump’s decision to water down trade tariffs after early April panic in financial markets is evidence that the financial system is too levered for tough reforms and warrants additional money creation.

“They can call it whatever they want—just don’t call it QE—but it has the same effect: liquidity rises and Bitcoin benefits,» Hayes said.

Impending rally won’t be smooth

The bullish case for BTC does not necessarily mean there won’t be hiccups.

The U.S. Treasury market serves as a bedrock of global finance and increased volatility in these bonds could cause financial tightening, potentially triggering a global dash for cash that sees investors sell every asset, including bitcoin.

As of now, however, the MOVE index, which represents the 30-day implied or expected volatility in the U.S. Treasury notes, remains in a downtrend.

Crypto exchange KuCoin’s merchant service is enhancing its provision for users to complete mobile transactions with cryptocurrency.

KuCoin Pay has tapped payment protocol AEON to allow users to pay for goods and services online and in-store using cryptos such as bitcoin BTC, ether ETH and stablecoins USDT and USDC, according to an emailed announcement on Tuesday.

The service is being rolled out across «high-growing Asian markets» initially with plans to expand in the future, a KuCoin spokesperson told CoinDesk via Telegram.

KuCoin, like other crypto firms, is exploring how it can accelerate crypto adoption by allowing users to easily spend cryptocurrency when carrying out day-to-day transactions.

The Seychelles-headquartered exchange unveiled KuCoin Pay at the start of this year, allowing merchants to integrate it into their systems and enable cryptocurrency payments. The tie-up with AEON is intended to drive user adoption through offering faster and more secure mobile payments across all major blockchains.

Read More: Lyzi Raises $1.4M to Expand Tezos-Based Crypto Payments Service for Retail