The long-running Bitcoin price bull run faces a major risk as U.S. Treasury yields climb to their highest levels in months.
Bitcoin (BTC) has enjoyed a strong rally over the past few years, surging from its 2022 lows to a record high of $108,000 in December.
The cryptocurrency has benefited from multiple tailwinds, including rising ETF inflows, which now total over $35 billion. Companies like Semler Scientific, MicroStrategy, and Marathon have continued accumulating more Bitcoin.
At the same time, Bitcoin’s mining difficulty and hash rate have reached record highs. Balances on exchanges have fallen to multi-year lows, creating favorable supply and demand dynamics.
However, Bitcoin—and stocks—face a major risk as U.S. Treasury yields rise following the Federal Reserve’s recent decision. The Fed cut rates by 0.25%, bringing the total annual rate cuts to one percent. The committee also indicated that there will be two more rate cuts this year, fewer than expected.
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Technical indicators suggest that U.S. yields are poised for a rebound. As shown below, the U.S. 30-year yield has formed a near-perfect inverse head and shoulders chart pattern, a popular bullish reversal signal. If this pattern holds, the next resistance level will be 5.175%, the highest point since October 2023.
I’ve argued that most asset markets appear overvalued, bordering on frothy. Stocks, corporate bonds, single family housing, crypto and gold, quickly come to mind. But what could be the catalyst for them to selloff? How about a meaningful correction in the Treasury bond market.
— Mark Zandi (@Markzandi) December 8, 2024
Higher bond yields negatively impact stocks and risky assets like Bitcoin due to sector rotation. For instance money market fund assets have risen to $6.83 trillion, up from $5 trillion in 2020, as investors shift toward safer assets.
Conversely, risky assets like Bitcoin tend to perform well when bond yields fall, as investors diversify their portfolios away from bonds.
I’ve argued that most asset markets appear overvalued, bordering on frothy. Stocks, corporate bonds, single family housing, crypto and gold, quickly come to mind. But what could be the catalyst for them to selloff? How about a meaningful correction in the Treasury bond market.
— Mark Zandi (@Markzandi) December 8, 2024
Bitcoin price technical analysis
I’ve argued that most asset markets appear overvalued, bordering on frothy. Stocks, corporate bonds, single family housing, crypto and gold, quickly come to mind. But what could be the catalyst for them to selloff? How about a meaningful correction in the Treasury bond market.
— Mark Zandi (@Markzandi) December 8, 2024
In the short-term, however, Bitcoin price has numerous tailwinds that could push it to its all-time high of $108,000. For example, it may benefit from the January Effect, a situation where investors buy back assets after the Christmas holiday.
Bitcoin may also benefit ahead of the $16 billion FTX distributions and the change of guard at the Securities and Exchange Commission.
On the technical side, Bitcoin appears to have found substantial support, as it has consistently held above its ascending trendline. It has also remained above the 50-day moving average, while the MVRV indicator continues to trend upward. Therefore, Bitcoin is likely to rise during the first quarter, though it could stall or pull back in Q2.
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