As bitcoin (BTC) maintains its position near record highs, indicating a typical pause in the bull market, concerns arise from recent macroeconomic shifts that could impede further upward movement, according to a prominent crypto observer.
In an interview with CoinDesk, Chang, a crypto options trader and market analyst, voiced apprehensions about the impact of hardening government bond yields on risk assets, including cryptocurrencies. He highlighted the volatility in bond yields, attributing it to weak demand compared to U.S. Treasuries issuance, which could potentially affect bitcoin’s trajectory along with the dollar index.
Recent weeks have seen a rise in Treasury yields, driven by persistent U.S. debt concerns, a surge in bond supply, and an uptick in Japanese government bond yields. The benchmark 10-year Treasury yield surged by 24 basis points to 4.55% over a span of two weeks, as per data from TradingView. Analysts in traditional markets speculate that a move beyond 4.7% could introduce volatility into stock markets.
Elevated bond yields typically result in higher borrowing costs for individuals and businesses, diminishing the allure of investing in comparatively risky assets like bitcoin and technology stocks. Chang anticipates continued volatility in yields throughout June, predicting a close correlation between bitcoin and stocks.
With the two-year Treasury yield nearing 5%, the allure of securing 5% returns in government bonds, deemed safe investments, might tempt macro traders to shift capital away from stocks, cryptocurrencies, and other riskier segments of the financial market.
“We’re now at a level of bond yields where rising yields from here are really going to weigh on all asset classes,” remarked Peter Oppenheimer of Goldman Sachs during a recent interview on Bloomberg Surveillance.
Market participants are closely monitoring the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, for insights into the trajectory of interest rates. Scheduled for release at 8:30 EST (12:30 UTC) on Friday, the PCE data for April is anticipated to reveal a 2.7% annual increase, mirroring March’s figures. A 0.3% month-over-month uptick is forecasted, following March’s 0.32% rise. Projections for the core PCE, excluding food and energy prices, suggest a 2.8% annual increase and a 0.3% month-on-month rise.
“The most important main event of the day is PCE. The data the Fed loves. The 2% inflation target they talk about is PCE, not CPI. If the data beats expectations, people will not buy risk assets,” Chang emphasized.
A stronger-than-anticipated surge in the core PCE figure could undermine the case for further interest rate cuts, leading to a further strengthening of bond yields. At present, Fed funds futures indicate investors pricing in just 35 basis points of rate cuts for the year.