Bitcoin Faces Hurdles as Treasury Yields Hit 5% After Strong Rally

Bitcoin (BTC) just wrapped up its best third quarter since 2017, but the rally faces challenges as Treasury yields surpass 5%, offering investors a safer alternative to risky assets. Delphi Digital noted that Bitcoin surged 43% in Q3, followed by a third consecutive weekly gain. However, the climb is met with stiff resistance, particularly from the Federal Reserve’s September rate hike and soaring Treasury yields, which have hit multi-decade highs.

Delphi Digital emphasized that government bonds yielding over 5% risk-free make risky assets like Bitcoin work harder to justify investment. Despite this, Bitcoin has managed to rise, supported by growing interest in the so-called debasement trade, where persistent government borrowing and currency expansion are expected to weaken the dollar’s purchasing power.

Vanessa Grellet, managing partner at Arche Capital, pointed out that the debasement trade doesn’t require low interest rates, as investors increasingly focus on federal deficits and rising government interest costs. Bitcoin’s price briefly hit $87,000 last week before correcting lower, gaining over 35% since mid-August, shortly after the US Treasury announced plans to triple its long-dated debt buybacks to support market liquidity.

The interest rate environment facing Bitcoin may ease after weaker-than-expected jobs data reduced the likelihood of another Fed rate hike in October. The US economy added just 29,000 jobs in September, far below forecasts of 80,000. This disappointing data suggests a cooling labor market, giving the Fed more room to pause rate hikes. New York Federal Reserve Bank President John Williams stated that there is no need for urgency in raising rates further.