Bitcoin to face more near-term volatility as US Treasury yields rise: Bitfinex Alpha

Bitcoin (BTC) has been seen briefly trading below the $90,000 range in recent days, with analysts saying the cryptocurrency faces the risk of more near-term volatility. While the narrative paints BTC as resilient, macroeconomic pressures could drag the digital asset to levels not seen in months.

A Bitfinex Alpha report has cited tightening financial conditions, the US Federal Reserve signaling fewer rate cuts, and news of the Department of Justice’s authorization to liquidate $6.5 billion worth of BTC as factors driving dumping. However, rising US Treasury yields are another important factor.

Macroeconomic pressures

US 10-year Treasury yields recently rose to 4.79%, a level not seen in 14 months. The last time yields rose above that 4.6% was in April 2024, when BTC traded near $73,000. Interestingly, BTC did not touch $73,000 again for seven months.

Bitfinex analysts noted that the rise in Treasury yields has significant implications for both traditional markets and risk assets. Higher yields lead to higher yields on low-risk government bonds, making them more attractive to institutional and conservative investors.

“As yields rise, the opportunity cost of holding Bitcoin rises, prompting some institutional investors to rebalance their portfolios away from cryptocurrencies and into safer yield-generating assets,” the analysts said.

In addition, higher yields indicate a tightening of financial conditions, which affects the overall liquidity of financial markets. Borrowing becomes more expensive and capital flowing into speculative assets like cryptocurrencies decreases significantly. Diversified institutional investors also rotate their crypto capital into bonds to take advantage of safer returns.

A more volatile environment for BTC

While movements in Treasury yields often affect risk assets with a lagged effect, BTC tends to react faster compared to stocks due to its higher volatility and greater sensitivity to changes in liquidity. The S&P 500 reacts within one to three months, while BTC takes one to two weeks or less in highly speculative market conditions.

Bitcoin’s reaction to the recent rise in Treasury yields can be seen in the net outflows of US spot Bitcoin exchange-traded funds (ETFs). These funds have recorded negative flows in seven of the last 12 trading days.

Although the market condition suggests a more volatile environment in the coming weeks, Bitfinex believes that the incoming US administration could limit deeper losses and keep BTC in a strong position for the long term.

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