Bitcoin’s Strong Rally Faces Treasury Yields Over 5 Percent

Bitcoin (BTC) just wrapped up its best third quarter since 2017, but maintaining the momentum could be challenging as Treasury yields surpassing 5% offer investors a safer alternative to riskier assets. According to Delphi Digital, Bitcoin surged by 43% in the third quarter and marked its third consecutive weekly gain last week. However, the firm noted that rising Treasury yields and the Federal Reserve’s September rate hike present significant resistance for further gains.

Delphi Digital emphasized that with government bonds yielding over 5%, risky assets like Bitcoin must perform exceptionally well to attract investors. Despite this headwind, Bitcoin has managed to stay resilient, partly due to the so-called debasement trade, where investors bet on government borrowing and currency expansion eroding the dollar’s value. Vanessa Grellet, managing partner at Arche Capital, pointed out that this trade does not require low interest rates, as investors are increasingly focused on federal deficits and rising interest bills.

Last week, Bitcoin briefly touched $87,000 before correcting lower. The cryptocurrency has climbed over 35% since mid-August, shortly after the US Treasury announced plans to triple its long-dated debt buybacks to support market liquidity. Some investors viewed this move as an effort to ease bond market strains and control borrowing costs.

The interest rate environment facing Bitcoin may become less restrictive after weaker-than-expected jobs data significantly reduced the likelihood of another Fed rate hike in October. The US economy added just 29,000 jobs in September, far below the forecasted 80,000. This disappointing report, combined with cooling labor market signs, has given the Fed more room to delay rate hikes. Fed officials, including New York Federal Reserve President John Williams, have recently advocated for patience. Currently, the odds of an October rate increase stand at around 24%, down from over 75% a week earlier.