The 30-year US Treasury yield has reached 5%, a level only seen twice in the past two decades, prompting concerns among crypto analysts about the potential impact on bitcoin. This surge in bond yields is attributed to several factors, including dissent within the Federal Reserve, elevated oil prices, and rising long-term inflation expectations. As a result, bitcoin, currently trading at $75,670, is under pressure, down 2% over 24 hours. The strengthening Dollar Index is also contributing to the downward trend.
The increase in bond yields makes them more attractive to investors, potentially leading to a capital rotation out of risk assets like bitcoin and into bonds, which offer a relatively risk-free return. According to Diana Pires, chief business officer at sFOX, the dynamic is straightforward: as long as yields remain attractive and the Fed's monetary policy stays tight, capital will favor safer alternatives, putting pressure on assets like crypto.
The rise in bond yields is not limited to the US, with yields also increasing in the UK and other parts of the world. The Federal Reserve's decision to leave rates unchanged, combined with internal dissent among voting officials, has pushed up expectations for higher interest rates, further contributing to the increase in bond yields.
This environment of financial tightening, where borrowing becomes more expensive, tends to discourage risk-taking in both financial markets and the economy. Experts, including Vikram Subburaj, CEO of Giottus exchange, note that rising Treasury yields and a stronger dollar have historically pressured crypto valuations by tightening financial conditions.
The recent oil price surge, with Brent briefly topping $125 per barrel, has also played a role in lifting inflation expectations, thereby supporting the increase in bond yields. As Diana Pires observed, until the Fed signals a near-term shift in policy, flows will likely continue to favor yield and safety over volatility, maintaining a headwind for crypto.