Yields near 5% could keep Bitcoin’s run beating its 2017 peak

The numbers from Bitcoin’s most recent three-month stretch show a strong run, but they also suggest problems may be developing. The coin has just posted its strongest quarter since 2017.

Delphi Digital observes that Bitcoin (BTC) climbed 43% during the third quarter, then extended its rally across three consecutive weeks. The firm cautions, however, that the upward momentum is facing genuine resistance from the other side of the ledger. With Treasury yields now past 5%, risk assets need to demonstrate their worth more than they did before.

The 5% Barrier

Delphi notes the climb upward faces real pressure, citing the Federal Reserve’s September rate hike alongside rising Treasury yields that now sit at multi-decade highs. With government bonds paying over 5% risk-free, every other investment must offer a stronger return to justify holding it.

So far, Bitcoin has managed to get past that hurdle. The debasement trade, which rests on the idea that repeated government borrowing and currency expansion will eat away at the dollar’s value, has gained ground. Investors are placing their money on the belief that inflation will wear down savings kept in cash or bonds.

Grellet on the Debasement Trade

Managing partner Vanessa Grellet of crypto-focused venture firm Arche Capital takes issue with a key piece of that reasoning. She contends that the debasement trade still holds up even with interest rates elevated, since the core worry centers on the volume of new money being generated, not the price of borrowing it.

She argues that the trade remains intact no matter what interest rates do. Her position runs contrary to the common belief that elevated rates crush risk appetite.

Price Action and the Jobs Report

Bitcoin’s price touched $87,000 last week before pulling back. It has gained more than 35% since mid-August, shortly after the US Treasury announced plans to double its long-dated debt buybacks to support market liquidity, targeting 10- and 20-year notes. Some investors saw the move as an effort to ease strains in the bond market and contain borrowing costs.

Those buybacks have since tripled in size.

Last week brought a shift in how the situation is viewed. A weak reading on US employment numbers has made another interest rate increase from the central bank in October seem less likely, which has taken some pressure off Bitcoin as investors keep turning to the debasement trade.

The Jobs Numbers

In September, the US economy created only 29,000 jobs, far short of forecasts of 80,000. That weak reading adds to other signals pointing toward a cooling labor market, which gives the Fed more room to hold off on raising rates again.

New York Federal Reserve Bank President John Williams, a voting member of the Federal Open Market Committee this year, said the central bank does not need to rush into another hike. “With the policy action we took at our September meeting, there is no need for urgency,” Williams said in a speech last week.

The FedWatch Tool from CME Group currently places the chances of an October rate hike at roughly 24%, a drop from over 75% just a week before.

What This Means for Bitcoin

The strain at hand is obvious. Bitcoin is performing well, yet the setting that drove people toward it — the idea that dollars are losing value — is clashing with a setting where safety carries more weight.

Treasury yields are pressing down on Bitcoin right now, and the market is seeing whether the coin’s current momentum can hold up against that pressure. The 5% barrier remains a genuine concern, and the test of it continues at this moment.

The paper argues that Bitcoin has momentum, though momentum on its own does not ensure anything. Right now, the market is testing the 5% barrier, which the paper treats as a genuine limit.

Source material: “Treasury yields at 5% threaten extending Bitcoin’s best quarter since 2017,” Cointelegraph.

Bitcoin · crypto · debasement trade · Fed · Treasury yields