Bitcoin’s Strong Rally Faces Treasury Yield Challenge
Bitcoin (BTC) is coming off its strongest third quarter since 2017, with a 43% gain in Q3. However, extending this rally may be challenging as Treasury yields surpassing 5% present investors with a compelling alternative to riskier assets, according to Delphi Digital. The firm noted that Bitcoin's recent climb is facing significant resistance, particularly due to the Federal Reserve's September rate hike and rising Treasury yields, which have hit multi-decade highs.
Delphi Digital emphasized that when government bonds offer over 5% risk-free returns, risky assets must perform exceptionally well to attract investment. Despite this, Bitcoin has managed to push higher, partly due to the growing 'debasement trade', the belief that persistent government borrowing and currency expansion will weaken the dollar's value.
Vanessa Grellet, managing partner at Arche Capital, pointed out that the debasement trade does not require low interest rates, as investors are increasingly focused on federal deficits and rising government interest costs. Bitcoin briefly surged above $87,000 last week before correcting lower, marking a 35% gain 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 could ease 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 forecasts of 80,000. This disappointing report, along with signs of a cooling labor market, gives the Fed more flexibility to delay further rate increases.