The Impact of Rising Interest Rates on Bitcoin and Crypto
In the current economic climate of increasing interest rates and uncertainty, the cryptocurrency market, including Bitcoin, is facing significant challenges. This is highlighted by the recent surge in the benchmark 10-year US Treasury yield, which reached a 16-year high.
The Longest Yield Curve Inversion Ever
Historically, an inverted yield curve, where short-term yields surpass long-term yields, has often preceded economic downturns. Notably, the 10-Year minus the 3-Month Treasury Yield curve has been inverted for a record-breaking 217 trading days. Past data suggests that the longer the delay between the inversion and the start of a recession, the more severe the recession tends to be.
Joe Consorti, Market Analyst at The Bitcoin Layer, expressed concern about this issue on Twitter. He noted that when the yield curve steepens, it typically doesn’t indicate economic expansion.
The Federal Reserve’s Stance
The recent signals and policy stance of the Federal Reserve have caused waves in the financial world. Charlie Bilello, Chief Market Strategist at Creative Planning, pointed out that the 10-Year Treasury Yield reached its highest level since October 2007. Bilello also highlighted a significant reduction in the Fed’s balance sheet.
The Fed’s latest FOMC meeting indicated potential rate hikes this year and fewer cuts next year. The central bank now predicts half a percentage point of rate cuts in 2024. However, market expectations differ from this “higher for longer” strategy.
Implications for Bitcoin and Crypto
Bitcoin and other cryptocurrencies have historically been sensitive to increases in the 10-Year Treasury Yield. Rising yields often signify expectations of higher interest rates, leading to reduced speculative investments. Investors tend to favor more stable, yield-bearing assets over riskier options like Bitcoin and crypto.
The “higher for longer” approach and the Fed’s balance sheet reduction pose additional challenges for the market. Risk assets like Bitcoin rely on high liquidity, which may decrease in a drying financial market. Furthermore, concerns about a possible recession are heightened due to the inverted yield curve. It remains uncertain how Bitcoin and crypto would perform in such a scenario.
Hot Take: Bitcoin Faces Headwinds as Interest Rates Rise
As interest rates continue to climb and economic uncertainty looms, Bitcoin and the wider cryptocurrency market encounter significant obstacles. The 10-year US Treasury yield reaching a 16-year high signals a shift in the financial landscape. An inverted yield curve, present for a record-breaking 217 trading days, historically indicates an impending economic downturn. This raises concerns about the severity of a potential recession.
Rising yields often lead to reduced speculative investments, favoring more stable assets over cryptocurrencies. Additionally, the Federal Reserve’s stance on interest rates and its balance sheet reduction pose challenges for Bitcoin’s liquidity and market performance. As uncertainties persist, it remains unclear how Bitcoin would fare in a recessionary environment.
At press time, Bitcoin traded at $26,655.
By
By
By
By
By