Bitcoin started the year on a painful note, even if the stock markets remained dynamic. But stock traders’ luck is now running out as rising bond yields put pressure on valuations.
Bitcoin prices plunged to nearly $60,000 from around $90,000 in the first five weeks of the year, according to CoinDesk data. This decline marks a sharp decoupling from the S&P 500 and the Nasdaq, which were trading at or near record highs at the time.
Analysts wondered how long the divergence would last – whether bitcoin would bounce back quickly or whether stocks would eventually catch up to bitcoin’s weakness.
The latter seems to be happening. Since the start of the Iran war on February 28, inflation fears and dwindling expectations of the Fed to cut rates have pushed U.S. Treasury yields higher, putting pressure on stocks.
The stock market weakness, which emerged weeks after BTC’s decline, highlights the cryptocurrency’s role as a leading indicator for traditional risk assets. Traders in conventional markets often monitor BTC to gauge their overall risk sentiment, particularly on weekends or days when traditional exchanges are closed.
Yields Rise, Stocks Fall
The yield on the 10-year U.S. Treasury note rose to 4.41% shortly before publication time, the highest since August 1. The benchmark borrowing cost has increased by 48 basis points since the start of the Iran war. The two-year US yield jumped 57 basis points to 3.94%.
Treasury bond yields are considered the benchmark for risk-free interest rates and borrowing costs in the economy, such as corporate bonds, mortgages, student loans, etc., are priced relative to Treasury bonds. So when yields rise, lenders typically raise rates on loans to maintain their spreads, driving up borrowing costs for businesses and consumers. This leads to risk aversion in stocks, which we are starting to see now.
Futures contracts linked to Wall Street’s technology index, the Nasdaq, fell to 23,890 points early Monday, the lowest since September 11. S&P 500 e-mini futures fell to 6,505 points, also the lowest since September.
CoinDesk recently highlighted that the price trends of major stock indexes bear a striking resemblance to the price action of Bitcoin before its crash. This similarity has raised concerns among analysts, suggesting that stocks could see further declines if this trend continues.
“Bitcoin sits at the tip of the risk asset iceberg, and its price collapse could be the start of a broader decline — particularly if rising commodity volatility spills over into stocks,” Mike McGlone, senior commodities strategist at Bloomberg, said in a recent report.
Stable Bitcoin
After crashing earlier this year, BTC has remained largely stable between $65,000 and $75,000 in recent weeks. At the time of writing, the cryptocurrency changed hands at $68,790.
Still, prices in the options market are showing maximum fear, resulting in record bias for put options or derivative contracts offering protection against BTC price declines.
