Bitcoin’s Rally Faces Headwinds from 5% Treasury Yields

Bitcoin (BTC) is ending its strongest third quarter since 2017, but the rally faces challenges as Treasury yields surpass 5%, offering a compelling alternative to riskier assets. Delphi Digital noted that Bitcoin gained 43% in the third quarter, marking three consecutive weeks of gains. However, the firm cautioned that rising Treasury yields, now at multi-decade highs, pose significant resistance.

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 climb, supported by the so-called debasement trade. This concept suggests that government borrowing and currency expansion will weaken the dollar’s value, making Bitcoin an attractive hedge.

Vanessa Grellet, managing partner at Arche Capital, pointed out that the debasement trade does not require low interest rates, as investors increasingly focus on federal deficits and rising government interest costs. Bitcoin briefly hit $87,000 last week before correcting lower. Since mid-August, it has surged over 35%, a rise that aligns with the US Treasury’s announcement to triple long-dated debt buybacks to support market liquidity.

The interest rate environment for Bitcoin may ease following weaker-than-expected jobs data, which reduced the likelihood of another Federal Reserve rate hike in October. The US economy added only 29,000 jobs in September, far below forecasts of 80,000. This data, combined with Fed officials signaling patience, has lowered the odds of an October rate increase to around 24%, down from over 75% a week earlier.