Bitcoin And Crypto Face Turbulence As 10-Year US Treasury Yield Hits 15-Year High
September 22 2023 - 6:30AM
NEWSBTC
In an environment of soaring interest rates and economic
unpredictability, Bitcoin and the broader crypto market face
increased headwinds. The shift in the financial landscape was
recently underscored by the Benchmark 10-year US Treasury yield,
which hit a 16-year high this Thursday. Longest Yield Curve
Inversion Ever Historically, an inverted yield curve, where
short-term yields are higher than long-term ones, has been a
harbinger of economic downturns. Notably, the 10-Year minus the
3-Month Treasury Yield curve has been inverted for a record 217
trading days. Past data indicates that the longer the delay between
the inversion and the start of a recession, the more severe the
recession is likely to be. Joe Consorti, Market Analyst at The
Bitcoin Layer, underscored this concern, remarking on Twitter: “The
yield curve is re-steepening at breakneck speed. Up by 10 bps or
more today across the curve. Do you know what happens when the
yield curve steepens, every single time? Hint: not economic
expansion.” Related Reading: Ex-Alameda Employee Claims Firm
Triggered 87% Bitcoin Price Plummet In 2021 The Fed’s recent
signals and policy stance have taken the financial world by storm.
Charlie Bilello, Chief Market Strategist at Creative Planning,
noted, “The 10-Year Treasury Yield moved up to 4.49% today, highest
since October 2007. The Real 10-Year Yield (adjusted for expected
inflation) of 2.11% is now at the highest level since March 2009.”
Bilello also pointed out the significant reduction in the Fed’s
balance sheet, which is currently “over 10% below its April 2022
peak.” The two largest drawdowns over the last 20 years were
between December 2008 and February 2009 with 18.2% (balance sheet
hit a new high in Jan 2010), and from January 2015 to August 2019
with -16.7% (balance sheet hit a new high in March 2020). The rise
in the 10-Year Treasury Yield was reiterated by the analysts from
“The Kobeissi Letter,” who stated: “BREAKING: 10-Year Note Yield
officially hits our 4.50% target… The 10-Year Note Yield is up an
incredible 20 basis points in less than 24 hours… With supply side
inflation out of control and oil prices back to $90+, the Fed has
no choice. Higher for longer is back.” The Federal Reserve’s Stand
During Wednesday’s FOMC meeting, the US central bank and chairman
Jerome Powell have made clear its intentions, signaling the
potential for an additional rate hike this year and forecasting
fewer cuts next year. It now forecasts half a percentage point
of rate cuts in 2024. Prior, the dot plot showed cut rates by a
full percentage point next year. Related Reading: Why Touching This
Bitcoin Level Could Hold The Key For A Rally This “higher for
longer” strategy seems to diverge from the market’s prior
expectations, despite three months of seemingly positive inflation
data. Moreover, Powell conveyed confidence in the US. economy,
emphasizing the need to ensure interest rates are adjusted
correctly to achieve the central bank’s 2% inflation target.
However, the market remains uncertain, with the CME Group’s
FedWatch Tool indicating only a 32% chance of another rate hike in
November and a 45% likelihood by December. Implications For Bitcoin
And Crypto Risk assets, including Bitcoin and other
cryptocurrencies, have historically been sensitive to increases in
the 10-Year Treasury Yield. Charles Edwards, founder of Capriole
Investments, highlighted the challenges for the Bitcoin and crypto
sector: The Fed wants more unemployment. The job market is still
too strong. They’ve raised the expected 2024 rates as a result and
the 10YR has broken out to new decade highs. As long as the 10YR is
breaking upwards like this, risk assets are going to see further
headwinds. Historically, rising yields are indicative of an
expectation of higher interest rates, which increase the cost of
borrowing. This scenario often leads to a reduction in speculative
investments, with investors favoring more stable, yield-bearing
assets over riskier options such as Bitcoin and crypto. Another
problem for the market is the “higher for longer” approach and the
massive reduction of the Fed’s balance sheet. Risk assets like
Bitcoin are traditionally a “sponge” for high liquidity, but when
this dries up in the financial market, they usually suffer the
most. In addition, concerns about a possible recession will
continue to rise due to the inverted yield curve. Remarkably,
Bitcoin and crypto have never traded in a recession, the reaction
is uncertain. At press time, Bitcoin traded at $26,655. Featured
image from Shutterstock, chart from TradingView.com
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