US Treasury Yields Increase! What Does This Mean For Bitcoin?

United States government bonds or Treasuries have a tremendous impact on all tradable markets, including Bitcoin… Assuming the worst-case scenario, what will happen to the families, businesses, and countries that hold these bonds, assuming that the U.S. government will eventually be unable to repay its debt? Failure to repay interest debt will likely result in a global US dollar shortage, experts say. Here’s data on Treasury returns and some analysis of how Bitcoin will be affected.

What do the developments in the USA indicate?

Many experts argue that failure to make interest payments will cause USD shortages. However, even if this scenario does happen, history shows us that cryptocurrencies can work as a hedge in times of uncertainty. Bitcoin, for example, vastly outperformed traditional wealth protection assets during the US-China trade war in May 2021. Bitcoin gained 47 percent between May 5 and May 31 of that year, while the Nasdaq Composite lost 8.7 percent.

Because the public has more than $29 trillion in the U.S. Treasury, these coins are considered the lowest risk financial product in existence. Still, the price of each of these government bonds, or the yield traded, will vary depending on the contract term. Assuming that there is no counterparty risk for this asset class, the most important pricing factor is the expectation of inflation. Let’s examine whether the price of Bitcoin and Ethereum will be affected by the increased demand for US Treasuries.

Yields fall as demand for government bonds increases

If inflation is believed to be uncontrollable anytime soon, this investor will likely seek higher returns when trading in the Treasury. On the other hand, if the U.S. government is actively devaluing the currency or expecting additional inflation, investors will tend to seek refuge in U.S. Treasuries, resulting in lower returns. Notice how the five-year Treasury yield hit its high of 4.05% in more than three months on June 22. The move came as the US May Consumer Price Index showed 4.0% year-on-year, the lowest inflation increase since March 2021.

The 4.05 return indicates that investors do not expect inflation to drop below the central bank’s 2% target anytime soon, while also showing confidence that the 9.1% peak CPI data in June 2022 is lagging behind. However, Treasury pricing doesn’t work that way because investors are willing to give up rewards in exchange for the assurance of owning the lowest-risk asset. US Treasury yields are a great tool for comparing other countries and corporate debt, but not in absolute terms. These government bonds will reflect inflation expectations, but they can be severely curtailed if a global recession becomes more likely.

The typical inverse correlation between Bitcoin and the yield on US Treasuries has become invalid in the last 10 days; this is most likely because investors are desperately buying government bonds for their safety, regardless of whether the yield is lower than their inflation expectations. The S&P 500 index, which measures the US equity market, hit 4,430 on June 16, just 7.6% below its all-time high, which explains the high returns. While investors often seek scarce and inflation-protected assets before turbulent times, their appetite for excessive stock valuations is limited.

Recession risks may have distorted yield data

The only thing certain at the moment is that investors’ recession expectations are becoming more and more evident. Alongside the Treasury’s yield, the US Conference Board’s leading indicators fell for 14 consecutive months, as announced by Charlie Bilello. Bilello said the following:

As a result, those betting that Bitcoin’s inverse correlation with the yield of the US Treasury will quickly reverse may be disappointed. Data confirms higher-than-normal government bond yields as expectations for a recession and economic crisis rise.

Bitcoin reaches $31,000

Meanwhile, Bitcoin hit $31,000 for the third time this year on June 25. The data showed that BTC price movements focused on yearly highs. BTC price remained strong throughout the weekend as attention focused on geopolitical events in Russia and surrounding countries. As the tension eased during the day, curiosity about the reactions of the markets at the opening on June 26 continued and the weekly candle close, which is already a classic source of fluctuation, took the first place. In a recent analysis, popular trader Rekt Capital revealed the “best bullish scenario” for a weekly close above the crucial $30,000 mark.

Other trader Crypto Tony remained hopeful for the next trip to $32,000 if Bitcoin successfully consolidates around $31,000. Michaël van de Poppe, founder and CEO of trading firm Eight, questioned the bulls’ ability to sustain the upward momentum. “Bitcoin hit a nice high, surpassing its yearly high,” he told his Twitter followers. Van de Poppe repeated a popular downside target among market participants eager to “buy the dip” below $30,000.