Treasury Yields Are Now Above 5%. Here's Why That's Bearish For Bitcoin.

In this news:

Key takeaways

The 10-Year Treasury yield recently climbed to 5.3%, reaching its highest level since 2007.
Higher fixed-income yields strengthen the U.S. dollar and draw capital away from riskier assets like Bitcoin.
Bitcoin acts similarly to gold, facing downward pressure when guaranteed interest rates become more attractive.

The 10-Year Treasury yield recently hit 5.3%, its highest level since 2007. As a result, issuers of CDs, bonds, and other fixed-income investments will need to raise their yields to stay competitive. That shift could draw investors away from stocks and other riskier investments.

Some investors might argue that Bitcoin is immune to that shift because it's becoming a safe-haven hedge against the debasement of fiat currencies. But at $84,000, Bitcoin remains about 33% below its all-time high of $126,000 from last October. Let's see why higher yields are weighing down Bitcoin -- and why it might bounce back if those yields decline.

Why are rising Treasury yields hurting Bitcoin

Bitcoin is mined using the energy-intensive proof-of-work consensus mechanism, which relies on powerful computing hardware to solve cryptographic puzzles. But every four years, a scheduled “halving” halves those rewards, making it even harder to mine Bitcoin profitably.

More than 20 million of Bitcoin's maximum supply of 21 million tokens have already been mined, but its increasing difficulty will prevent its last token from being mined until 2140. That scarcity makes it more comparable to gold than many other cryptocurrencies, so it's often considered a hedge against inflation and the devaluation of the U.S. dollar.

How higher rates shift investor capital

However, rising Treasury yields also usually drive investors away from gold. While gold might be a good hedge against a weakening dollar, rising yields actually strengthen the U.S. dollar. As that happens, it makes more sense for investors to shift from gold toward low-risk CDs, Treasuries, bonds, and other fixed-income investments that pay guaranteed interest. At the same time, rising borrowing costs will prevent investors from taking on riskier, leveraged bets and drive them to liquidate more volatile investments to fund their fixed-income purchases.

Bitcoin, as “digital gold,” is exposed to the same headwinds. Many institutional investors will also rotate out of Bitcoin ETFs -- which provide exposure to Bitcoin without crypto wallets and keys -- as Treasury yields rise. So while Bitcoin and gold still might be good long-term bets against the U.S. dollar and other fiat currencies, they won't bounce back unless the Treasury yields cool off and risk-seeking investors return to the market.

I'm still bullish on Bitcoin's long-term growth potential, since monetary expansion policies will inevitably debase fiat currencies. But investors shouldn't conflate that debasement with the near-term pressures of rising interest rates and Treasury yields. Those challenges could prevent Bitcoin from revisiting its all-time highs for the foreseeable future.

Share the article: