Ouch.
This was the reaction of Holger Zschaeptiz, one of the most followed macroeconomic commentators on
His reaction also sums up the mood of several crypto analysts who see rising yields as a headwind for bitcoin. the world’s largest cryptocurrency by market value and a macro asset.
“At this point, the dynamic is simple. As long as yields remain attractive and [Fed’s monetary policy] remains tight, capital has a real alternative to risk. This continues to put pressure on assets like crypto, depending on liquidity and momentum,” said Diana Pires, chief commercial officer of sFOX, in an email to CoinDesk. sFOX is a San Francisco-based primary broker and cryptocurrency trading platform designed for institutional investors, hedge funds and corporations.
Bitcoin is already under pressure alongside a slight rise in the Dollar Index (DXY). At the time of writing, BTC was trading at $75,670, down 2% over 24 hours, and the DXY was hovering above 99, looking to extend Wednesday’s 0.5% gain.
Here’s why rising bond yields generally hurt BTC and other risky assets. When the U.S. government needs to borrow money, it issues bonds, and the yield on those bonds is the annual return that bond investors earn. So when yields rise, bonds become more attractive. A 30-year Treasury bond yielding 5% is an almost risk-free return.
Therefore, every dollar stored in Bitcoin is a dollar that does not earn that 5% return. This trade-off typically leads to a rotation of capital out of non-returning risk assets, such as Bitcoin and other risky assets like tech stocks. Rising yields also generally weigh on gold, which fell more than 1% to a one-month low of $4,540 on Wednesday and last changed hands near $4,564.
“Rising Treasury Yields and a Stronger Dollar [have] Historically, cryptocurrency valuations have been under pressure by tightening financial conditions,” said Vikram Subburaj, CEO of India-based FIU-registered exchange Giottus.
Note that the 30-year yield is not the only one to increase. The 10-year yield, which serves as a benchmark for borrowing costs across the economy, is also high. Together, they point to a financial crunch, a situation where borrowing becomes expensive, discouraging risk-taking in financial markets and the economy.
Bond yields are also rising in the UK and other parts of the world.
Fed dissidents oppose easing
The central bank left its rates unchanged between 3.5% and 3.75%, as expected. What we didn’t expect was internal dissent. Three of the 12 voting officials opposed a softening of the release’s wording, a move that caught markets off guard.
This has pushed up expectations of higher and longer interest rates, which is reflected in bond yields.
“The Fed’s decision to hold rates steady wasn’t the shock, but these three dissidents calling for a strike of any easing guidance have thrown a bucket of ice on the market pivot. It’s a classic hawkish signal, and because Bitcoin is generally a risk indicator, Bitcoin is feeling it,” Matt Mena, senior crypto research strategist at 21shares, said in an email.
ING called the three officials’ so-called hawkish dissent a warning shot aimed at new Fed Chairman Kevin Warsh, chosen by Donald Trump to replace outgoing Chairman Jerome Powell. “They may want to make it clear that they will not be easily swayed by his thinking that rates may eventually be lowered,” ING analysts said.
Interestingly, the policy statement released Wednesday contains no clear bias toward easing, reinforcing the message that the Fed is in no rush to pivot.
Rising oil prices raise inflation expectations
Rising bond yields aren’t just about the Fed. Oil prices hit their highest level since 2022 on Thursday morning, with Brent briefly surpassing $125 a barrel, after Trump considered extending the blockade of Iranian ports. Additionally, oil prices have risen, fluctuating widely between $80 and $120 since the start of the war in Iran in late February.
As a result, energy prices at gas stations are rising, driving up long-term inflation expectations, as CoinDesk noted earlier this week.
All this drives up yields.
“Inflation has not convincingly returned to target and the Fed is not signaling a near-term change. Markets may want clarity on cuts, but the Fed is not giving yet. Until that changes, flows will continue to favor yield and safety over volatility. For crypto, this means the macro backdrop remains a headwind, not a tailwind,” Pires said.
