Analysts see 10-year Treasury yield hitting 6%. Bitcoin bulls shouldn’t panic.
The 10-year Treasury yield has been rising for months, and some analysts now think it’s headed to 6%, a level last seen in 2000. That might sound like bad news for bitcoin, but the direction of the market depends on why yields are climbing.
Why Yields Matter More Than Their Height
Higher yields typically hurt assets with no cash flow, like gold and bitcoin. But the reason yields are rising matters more than how high they go. If investors want higher yields because they’re worried about record deficits, that’s a vote of no confidence in U.S. government finances. That’s the bull case for alternatives like bitcoin, which over the long term has been largely uncorrelated with yields, a recent CoinDesk analysis showed.
Markus Thielen, founder of 10x Research, put it in a note to clients Tuesday: “When yields rise because the Fed is tightening, bitcoin suffers. When yields rise on fiscal and term-premium concerns, the picture flips.” He forecasts a rise in the 10-year yield to 6% in the coming months.
The 2022 Playbook
Thielen’s take is backed by market action since 2022. The 10-year yield rose more than two-fold to 3.88% during that period as the Fed pushed up interest rates quickly, with several 50- and 75-basis-point increases used to battle inflation. Bitcoin declined 64% that year, weighed down by both Fed tightening and higher yields alongside crypto scams and blowups.
Since then, the numbers have changed shape. After the close of 2023, the 10-year yield has climbed by 135 basis points to 5.23%, the highest level seen since 2007. During that same period, bitcoin has moved up about two times, reaching $86,000, though it has pulled back from its October record above $126,000.
Thielen and his colleagues say fiscal worries and a bigger term premium explain most of the recent increase in yields. People demand greater compensation for committing funds to long-term bonds, owing to doubt about inflation and government borrowing.
What’s Driving the Current Rise
Debt worries and solid nominal growth underpin forecasts for the 6% 10-year yield, according to “The key point is that yields still sit well below nominal GDP growth (5.24% vs 6.56%), and far below the roughly 8.5% annual growth of federal debt since 2020, so bondholders are not yet being compensated for the pace at which the nominal economy and the debt stock are expanding,” Thielen.
During an appearance on CNBC, Dan Niles, founder of Niles Investment Management, identified 6% as a reasonable target for where the 10-year yield could go. His reasoning centered on two forces pulling against each other: deficits running at roughly 6% of GDP, and hyperscalers stepping into the role of direct competitors with the Treasury when it comes to raising money through debt. The government continues to issue bonds to cover its sizable, ongoing budget gaps, while major AI-focused technology firms are raising vast amounts in the same debt markets. This rivalry for the same pool of available funds has the potential to drive yields upward, making borrowing costs rise across the board.
The Caveat for Bitcoin Bulls
The caveat for bitcoin bulls is that if yields climb because the Fed starts raising rates rapidly again, the 2022 playbook applies. Bitcoin suffers when the Fed tightens, and the recent rise of the 10-year yield to 5.23% has come with bitcoin doing the opposite.
Chicago-based Strategic Analytics made a similar point about gold, noting that it has tracked fiscal risk more closely than the Fed’s policy path since 2022. “Gold is not defying real yields. It is pricing fiscal sustainability and currency debasement, which has become the marginal driver,” it said recently in a LinkedIn post.
Key Facts Box
- 10-year yield reached 6% last seen in 2000
- 10-year yield rose to 3.88% in 2022 as Fed tightened
- Bitcoin fell 64% in 2022
- Since end of 2023, 10-year yield rose 135 basis points to 5.23%
- Bitcoin roughly doubled to $86,000 over same stretch
- October bitcoin record: $126,000
Bitcoin bulls can take comfort from the fact that rising yields may actually help their coin rather than hurt it, depending on why those yields are climbing. If investors stop trusting government debt and pull money into safer assets instead, bitcoin stands to benefit from the shift. But if yields go up because the Fed tightens policy, then bitcoin tends to suffer alongside other risk assets during such tightening periods. Right now, the outlook leans toward the former scenario, with fiscal concerns driving the market’s expectations for higher borrowing costs.
Source material: “Analysts see 10-year Treasury yield hitting 6%. Bitcoin bulls shouldn't panic,” CoinDesk.
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