The 30-year US Treasury yield has reached 5%, a level only seen twice in the past two decades, prompting concerns among crypto analysts. This surge in bond yields is attributed to a combination of factors, including dissent within the Federal Reserve, rising oil prices, and increasing long-term inflation expectations. As a result, bitcoin, the world's largest cryptocurrency, may face downward pressure.
According to Diana Pires, chief business officer at sFOX, "the dynamic is simple: as long as yields remain attractive and monetary policy stays tight, capital has a real alternative to risk, pressuring assets like crypto." Bitcoin is already under pressure, trading at $75,670, down 2% over 24 hours, while the Dollar Index hovers above 99. Rising bond yields typically hurt risk assets like bitcoin, as they become less attractive compared to the almost risk-free return offered by bonds. Every dollar invested in bitcoin is a dollar not earning the 5% yield, leading to capital rotation out of non-yielding risk assets. Vikram Subburaj, CEO of Giottus exchange, notes that "rising Treasury yields and a stronger dollar have historically pressured crypto valuations by tightening financial conditions." The 10-year yield, a benchmark for borrowing costs, is also elevated, pointing to financial tightening and disincentivizing risk-taking.
The Federal Reserve's decision to keep rates unchanged, combined with internal dissent, has pushed up expectations for higher-for-longer interest rates, contributing to the rise in bond yields. The surge in oil prices, which reached their highest level since 2022, is also lifting inflation expectations, further driving up yields. According to Pires, "inflation is not convincingly back to target, and the Fed is not signaling a near-term shift, so flows will keep favoring yield and safety over volatility, making the macro backdrop a headwind for crypto."