A few days ago, Bitcoin (BTC) briefly traded below $90,000 before recovering to $95k today. Despite the narrative that BTC is a resilient asset, macroeconomic pressures could send the digital currency to its lowest levels in months.
A Bitfinex Alpha report cited tightening financial conditions, the US Federal Reserve’s signal of a slower rate cut, and news of the Justice Department’s authorization to dispose of $6.5 billion in BTC as key factors driving the decline. In addition, rising US Treasury yields also played a role.
The 10-year US Treasury yield recently rose to 4.79%, a 14-month high. The last time the yield rose above 4.6% was in April 2024, when BTC was trading near $73,000. Interestingly, BTC did not touch the $73,000 level again for another seven months.
Analysts at Bitfinex explained that rising Treasury yields have major implications for traditional markets and risk assets. Higher yields increase returns on low-risk government bonds, making them more attractive to institutional and conservative investors.
In addition, higher yields signal tighter financial conditions, which impacts overall liquidity in financial markets. Borrowing costs become more expensive, and capital flows into speculative assets such as cryptocurrencies decline significantly. Diverse institutional investors are also shifting their capital from crypto to bonds to take advantage of safer returns.
While Treasury yield movements often affect risk assets with a delayed effect, BTC tends to react faster than equities due to its higher volatility and greater sensitivity to changes in liquidity. The S&P 500 typically reacts within one to three months, while BTC requires 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 net outflows in US spot Bitcoin ETFs. These funds have recorded negative outflows in seven of the last 12 trading days.
While market conditions suggest a more volatile environment in the coming weeks, Bitfinex believes that the new US administration is likely to limit further losses and maintain BTC’s strong position in the long term.
