Bitcoin to Face Higher Volatility in the Near Term as US Treasury Yields Rise: Bitfinex Alpha

In recent days, bitcoin (BTC) has briefly traded below the $90,000 range, and analysts say the cryptocurrency faces the risk of increased volatility in the near term. Although the narrative describes 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 Justice Department’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 have recently risen to 4.79%, a level not seen in 14 months. The last time yields exceeded this 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 rising Treasury yields have important implications for both traditional markets and risk assets. Higher yields cause a spike in yields on low-risk government bonds, making them more attractive to institutional and conservative investors.

“As yields rise, the opportunity cost of holding Bitcoin increases, leading some institutional investors to rebalance their portfolios away from cryptocurrencies and toward safer, yield-producing assets,” the analysts said.

Furthermore, higher yields indicate a tightening of financial conditions, which affects overall liquidity in financial markets. Loans become more expensive and the capital flowing into speculative assets like cryptocurrencies decreases significantly. Diversified institutional investors are also rotating their capital out of cryptocurrencies and into bonds to take advantage of safer returns.

A more volatile environment for BTC

Although movements in Treasury bond yields often affect risk assets with a lagged effect, BTC tends to react more quickly compared to stocks due to its higher volatility and greater sensitivity to liquidity changes. 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 from US spot Bitcoin exchange-traded funds (ETFs). These funds have recorded negative flows in seven of the last 12 business days.

While 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 in the long term.