Bitcoin to Face More Volatility in the Short Term as US Treasury Yields Surge: Bitfinex Alpha

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Over the last several days, bitcoin (BTC) has momentarily dipped below the $90,000 threshold, and experts predict that it may experience further price fluctuations in the near future. Despite portraying BTC as robust, broader economic forces might pull the digital currency to prices not experienced in a while.

According to a Bitfinex Alpha report, several factors seem to be causing Bitcoin to drop in value. These include tightening financial conditions worldwide, hints from the Federal Reserve that they may not lower interest rates as much, news about the Justice Department’s approval to sell off $6.5 billion worth of Bitcoin, and increasing U.S. Treasury yields. The last point is an especially significant factor in this situation.

Macroeconomic Pressures

10-year U.S. Treasury interest rates have just reached a 14-month high at 4.79%. The last time yields rose above 4.6% was in April 2024, coinciding with Bitcoin trading near $73,000. However, Bitcoin didn’t revisit that price for the next seven months.

Experts at Bitfinex pointed out that the surge in U.S. Treasury bond yields could have substantial effects on conventional markets as well as riskier assets. Essentially, when yields go up, the returns from safe, low-risk government bonds become more enticing to institutional and conservative investors, potentially diverting funds away from riskier investments.

Analysts have pointed out that as the returns on traditional investments grow, it becomes more expensive to hold Bitcoin. This leads certain institutional investors to shift their investment portfolios towards safer options with higher yields, such as bonds or stocks, instead of cryptocurrencies.

Furthermore, increased output suggests a tightening of monetary conditions, leading to reduced liquidity in financial markets. This makes borrowing costlier, causing a substantial decrease in investment in speculative assets such as cryptocurrencies. In response, diversified institutional investors tend to redirect their capital from crypto into bonds for the sake of safer returns.

A More Volatile Environment for BTC

As a crypto investor, I’ve noticed an interesting pattern: While traditional risk assets like the S&P 500 may react to Treasury yield movements with a delay of one to three months, Bitcoin tends to respond more swiftly, often within a week or less – especially in highly speculative market conditions. This quick reaction could be due to its inherent volatility and heightened sensitivity to liquidity changes compared to equities.

As a researcher, I’ve observed an intriguing correlation between the recent surge in Treasury yields and Bitcoin’s behavior. Specifically, U.S. spot Bitcoin exchange-traded funds (ETFs) have experienced net withdrawals over the past seven out of twelve trading days. This trend suggests that investors are pulling their funds out of these Bitcoin ETFs, possibly due to the impact of rising Treasury yields on their investment decisions.

As a researcher examining the current market landscape, it appears we’re heading towards a more turbulent phase in the near future. However, Bitfinex posits that the upcoming U.S. administration might mitigate further declines, thereby maintaining Bitcoin’s robust long-term standing.

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2025-01-14 14:40