The reaction of Holger Zschaeptiz, a prominent macro commentator, to the 30-year US Treasury note yield hitting 5% encapsulates the sentiment of many crypto analysts, who view rising yields as a challenge for bitcoin. The current yield level has been reached only twice in the past two decades.
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 seek alternatives to risk, pressuring assets like crypto. Bitcoin is already feeling the pressure, trading at $75,670, down 2% over 24 hours, alongside an uptick in the Dollar Index. Rising bond yields typically hurt bitcoin and other risk assets because they make bonds more attractive, leading to capital rotation out of non-yielding assets. The 30-year Treasury yield of 5% is an almost risk-free return, making every dollar invested in bitcoin a dollar not earning that 5% yield.
This situation typically results in capital moving out of risky assets like bitcoin and technology stocks. 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 increase in the 10-year yield, which serves as a benchmark for borrowing costs, also points to financial tightening. The recent surge in bond yields is not limited to the US, as yields are also rising in the UK and other parts of the world. The Federal Reserve's decision to leave rates unchanged, combined with internal dissent from three voting officials, has pushed up expectations for higher-for-longer interest rates. This development has caught markets off guard and is contributing to the rise in bond yields.
The oil price rally, with Brent briefly topping $125 per barrel, is also lifting inflation expectations, further driving yields higher. As a result, the macro backdrop remains a headwind for crypto, with flows favoring yield and safety over volatility.