What a 5% U.S. Treasury Yield Means for Bitcoin

Bitcoin is falling 3% to around $76.7K Tuesday, giving up yesterday's gains as U.S. Treasury yields continue to rise amid the prospects of higher interest rates and as optimism cools that a key U.S. regulatory bill will progress.

The U.S. 10-year Treasury yield has risen above 5% to a peak of 5.04%, its highest level since 2007, driven by surging energy prices, mounting debt and inflation worries.

What is driving the latest surge in yields? 

This leg higher comes amid rising expectations that the Fed will hike rates by 25 bps at this week's FOMC meeting. This would be the first hike since July 2023, amid signs of still-sticky inflation that remains persistently above the Fed's 2% target.

The market is pricing in a 90% probability that the Fed will hike and a 53% probability that the central bank will hike again in October. 

The risk here is that if the Fed doesn't hike, or if Chairman Kevin Warsh signals less monetary tightening in the coming months than is currently priced into markets, bond investors could send yields even higher to protect against inflation risks.

This is especially true because oil prices keep climbing amid ongoing hostilities in the Middle East. At the same time, concerns over deteriorating U.S. fiscal positions are also driving traders to demand higher yields.

What does a higher yield mean for Bitcoin? 

Higher yields on supposedly risk-free U.S. government bonds mean investors can lock in strong, low-risk returns instead of taking on riskier returns through Bitcoin or stocks. As a result, higher yields often dampen demand for riskier assets.

Non-yielding assets such as gold and Bitcoin face increased pressure as the opportunity cost of holding them rises.

However, a disorderly rise in bond yields could be considered a significant risk to the outlook for Bitcoin. This is not the only risk to Bitcoin, however.

Bitcoin is also struggling amid rising concerns that the Clarity Act, a key U.S. regulatory bill, may not progress this week.

While the odds of the Clarity Act passing jumped above 30% on Polymarket on Monday, helping Bitcoin rise, they have now fallen back to just 18% as Democrats push back on Republicans' latest offer.

Should the Act pass, it would help to clarify the future of crypto regulation in the U.S., making digital assets more attractive to an increasing number of institutions. Without it, the regulatory landscape remains less clear.

However, the bill needs a number of Democrats to cross party lines to advance and move towards final passage. 

Bitcoin technical analysis 

BTC has traded in a range capped on the upside by $81.2K and on the lower side by $76.4K. The price is testing the lower bounds of its holding pattern as momentum slows, with the RSI pointing lower.

Sellers will need to break below $76.4k to bring $73.4K into focus, a confluence of the 50 and 200 EMAs, as well as the 61.8% Fibonacci retracement of the $82.8K high and $57.7K low. Below here, attention turns to $70k, a round number, ahead of $77K, the 38.2% Fibonacci retracement and the June high.

However, should the support hold, buyers will look to recover above the $81.2K level and $82.9K, the May high, in order to create a higher high and turn attention towards $90,000. 

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