Bitcoin’s Rally Faces Test as Treasury Yields Hit Multi-Decade Highs

Bitcoin (BTC) just completed its strongest third quarter since 2017, but extending that rally faces new challenges as Treasury yields surpass 5%, offering investors a safer alternative to riskier assets. Delphi Digital noted in its latest newsletter that Bitcoin surged 43% in the third quarter, with a third consecutive weekly gain. However, the firm cautioned that rising Treasury yields, now at multi-decade highs, pose significant resistance, as they provide a risk-free return that makes other investments work harder to justify their value.

Despite these headwinds, Bitcoin has managed to climb higher, partly due to growing interest in the so-called debasement trade. This theory suggests that persistent government borrowing and currency expansion will weaken the dollar’s purchasing power, making Bitcoin an attractive hedge. Vanessa Grellet, managing partner at Arche Capital, emphasized that the debasement trade doesn’t require low interest rates, as investors increasingly focus on federal deficits and rising government interest costs.

Last week, Bitcoin briefly exceeded $87,000 before correcting lower. The cryptocurrency has gained over 35% since mid-August, a surge that began shortly after the U.S. Treasury announced plans to double its long-dated debt buybacks to support market liquidity. The Treasury’s move to triple those buybacks was seen by some as an effort to ease bond market strains and contain borrowing costs.

The interest rate environment facing Bitcoin could ease after weaker-than-expected jobs data significantly reduced the odds of another Federal Reserve rate hike in October. The U.S. economy added just 29,000 jobs in September, far below forecasts of 80,000, signaling a cooling labor market. This shift has given the Fed more flexibility, with officials like New York Federal Reserve Bank President John Williams advocating patience. CME Group’s FedWatch Tool now places the odds of an October rate hike at around 24%, down from over 75% a week earlier.