Foreign Investors Abandon US Bonds, Threatening Bitcoin Rally

A significant shift in foreign investment has left a lasting impact on the US Treasury market. In July, private foreign investors sold $29 billion of US bonds, marking a concerning trend for Bitcoin's next major rally.

This development is particularly noteworthy because long-term Treasury yields serve as a benchmark for borrowing costs and returns on safer assets. The recent rebound in short-term Treasury bills, with foreign buyers purchasing a net $38.8 billion, has not been accompanied by a corresponding increase in demand for longer-dated government debt.

The distinction between short-term and long-term debt is crucial because it reveals that private investors are favoring cash-like government paper over duration. This preference is evident in the Treasury yield curve, which shows a 1.05 percentage-point gap between one-month and 10-year yields.

The impact on Bitcoin is multifaceted. The Fed's financial conditions framework treats Treasury yields alongside private borrowing rates, equities, and the dollar. Higher risk-free returns can increase the opportunity cost of holding non-yielding assets like Bitcoin, while tighter credit can reduce capital available for riskier investments.