Bitcoin’s price took a tumble this week, falling back down to $66,000 after a brief flirtation with its all-time high. This pullback coincides with a surge in U.S. Treasury yields, raising concerns about investor risk appetite and the potential for a delayed interest rate cut by the Federal Reserve.
On Tuesday, the yield on the benchmark 10-year Treasury note hit a two-week high of 4.4%, fueled by strong economic data and persistent inflation worries. This uptick in yields for government bonds, traditionally seen as safe havens, presents a challenge for riskier assets like Bitcoin. Investors seeking a return on their money may be lured away from Bitcoin’s volatile swings and towards the relative stability of Treasuries, especially if they offer a more attractive interest rate.
“Higher interest rate environments typically tend to reduce investor appetite for risk,” explained Semir Gabeljic, director of capital formation at Pythagoras Investments. Bitcoin, with its lack of inherent yield, becomes less enticing when compared to bonds offering a guaranteed return.
This sentiment was echoed by market analysts. “The recent macro outlook on interest rates and rising Treasury yields” were the primary factors behind Bitcoin’s retreat, according to Gabeljic.
The Federal Reserve’s monetary policy also plays a significant role in investor decisions. Earlier expectations of a rate cut by the Fed in mid-2024 had buoyed the cryptocurrency market. However, recent economic data suggesting continued strength has cast doubt on that timeline.
Prediction markets and CME’s Fed Watch Tool are now indicating a near-zero chance of a rate cut before May, with a split decision on whether one will occur in June. The most likely scenario appears to be a rate cut later in the fall.
This delay in potential rate cuts could further dampen investor enthusiasm for Bitcoin. With the prospect of higher returns from interest-bearing assets, some investors may be hesitant to hold onto Bitcoin, leading to a potential sell-off and downward pressure on the price.
However, not all analysts are convinced that rising yields spell doom for Bitcoin. Some argue that Bitcoin’s unique qualities, such as its finite supply and decentralized nature, will continue to attract investors seeking a hedge against inflation and traditional financial institutions.
“Bitcoin is still a young asset class, and its price movements are naturally more volatile than established asset classes,” said a spokesperson for crypto exchange Kraken. “Long-term investors who believe in the potential of Bitcoin as a store of value are likely to remain invested despite short-term price fluctuations.”
The coming weeks will be crucial for Bitcoin. Whether the price can rebound will depend on several factors, including the Fed’s monetary policy pronouncements, economic data releases, and overall investor sentiment towards riskier assets.