CoinShares: The US bond market may matter more to BTC than the Fed’s next decision.

The 10-year Treasury yield topped 5.3%, while the 30-year yield reached 5.7% — their highest levels in over 20 years. This is usually negative for #BTC: high yields make risk-free dollar assets more attractive and tighten financial conditions.

BUT James Butterfill, Head of Research at #CoinShares, points to the reason behind the rise in yields.

If the bond market is falling because of a strong economy and expectations of tighter Fed policy, that puts pressure on BTC. BUT if investors are demanding a higher premium because of concerns about the sustainability of US public finances, then BTC could start to be seen as an alternative to government money and a hedge against fiscal risk.

Skeptics will, of course, smile and remember how many times people have said that cryptocurrency is an alternative to traditional finance. And then that very cryptocurrency promptly crashed, leaving its holders out in the cold. But crypto supporters will counter by recalling how the US banking crisis was one of the triggers for the crypto market’s rise in spring 2023.

A factor supporting a positive outlook for BTC is the market’s muted reaction to the actions of the US Treasury. In August, the department doubled the volume of long-term bond buybacks to at least $4 billion per operation, but yields did not fall noticeably. In Butterfill’s view, short-term liquidity support has not allayed concerns about public finances.

At the same time, the Fed remains caught between persistent inflation and a weakening labor market, so the market cannot build a scenario around interest rates alone.

Since mid-July, crypto funds have seen inflows of $11.1 billion, although the pace has slowed recently. CoinShares attributes this mainly to macroeconomic uncertainty.

The key question now is whether capital will start flowing into BTC not only in anticipation of Fed easing, but also as a hedge against US fiscal risks. For now, this is a scenario, not a confirmed shift. And skeptics, once again, will smile even at the mere suggestion of such a possibility.

Our view is that neither scenario can be ruled out—especially if the current trend confirms it.

We’ve already shown the BTC chart and its bullish signals from our P73 Trend & Target Dynamics indicator—a return to a sustained uptrend on the weekly timeframe. BTC’s outlook will become UNMISTAKABLY bullish if the price moves into a sustained uptrend on the 2-week timeframe as well.

And what does P73 Trend & Target Dynamics show for 10-year US Treasuries? It also points to yields continuing to rise. Here’s the picture. In the near term, we could see a correction from the Strong signal for a potential peak on the 3-day timeframe and from the regular peak markers on the weekly timeframe. But the trend remains strong, and the additional 5.731% target has yet to be reached on the 3-day and weekly timeframes.

On the 3-month timeframe, the metric turned into a sustained uptrend back in early 2022. It did so at roughly the same time on the 6-month timeframe. And the chart shows what the previous uptrend led to in 1951. The rise continued until the Strong signal markers for a potential peak in 1981.

THE most interesting question now is whether this metric will move into a sustained uptrend on the yearly timeframe. If the candle closes more or less at its current level, it will. And that could open the way, if not to new highs, then to around 8.68%. Recall that in 1981, Treasury yields reached their current ATH of 15.82%.