- The rise in U.S. Treasury yields may not have as significant an impact on Bitcoin’s bullish outlook as some fear.
- Bitcoin’s price is nearing a Golden Cross, a bullish indicator, despite recent struggles to surpass $70,000.
- Some analysts worry that continued yield increases could lead to prolonged declines in Bitcoin’s price.
- TS Lombard suggests concerns about the Federal Reserve’s potential policy mistakes are exaggerated.
- Historically, Bitcoin has performed well following the formation of a Golden Cross, as seen in previous instances.
Bitcoin’s Price Struggles and Treasury Yield Concerns
Bitcoin’s (BTC) recent failure to break through the $70,000 mark has prompted analysts to search for reasons behind this performance. Some point to the rise in U.S. Treasury yields as a factor that could further depress Bitcoin’s price if the trend continues. However, there are opposing views suggesting that the concerns may be overblown, with a focus on a possible Golden Cross, a bullish technical pattern, forming on Bitcoin’s chart.
The Impact of U.S. Treasury Yields on Risk Assets
U.S. Treasury yields, specifically the 10-year yield, have recently climbed to a three-month high of 4.26%, surpassing its 200-day simple moving average (SMA) according to TradingView. This rise followed the Federal Reserve’s decision to cut interest rates by 0.5% on September 18, leading to a 0.6% yield increase.
The rise in so-called “risk-free rates” typically makes bonds more attractive to investors, which can pull capital away from riskier assets like cryptocurrencies and tech stocks. This dynamic was evident when Bitcoin’s price dropped from nearly $70,000 to $67,000 in response to these developments.
Anonymous analyst The Great Martis, known for likening Bitcoin to a Nasdaq ETF, suggests that rising yields could create a “perfect storm” for risk assets, including Bitcoin. The concern is that continued yield increases may extend Bitcoin’s current downtrend.
Overreaction to Policy Concerns?
Despite these fears, some analysts believe that the concerns surrounding the Federal Reserve’s actions are exaggerated. London-based macroeconomic research firm TS Lombard argues that the market’s concerns about rising Treasury yields and potential policy mistakes by the Fed may be overstated.
In a memo to clients on October 17, Dario Perkins, Managing Director of Global Macro at TS Lombard, stated, “If there is a mistake here, it’s not by the Fed, but by those who continue to believe in the policy mistake narrative.”
Perkins further explained that the Fed’s recent rate cuts are unlikely to lead to the type of inflation seen in the late 1960s, citing a more resilient economy and a different macroeconomic environment. The rise in Treasury yields, he argued, does not necessarily signal a bearish market for risk assets or an impending recession.
Historical Comparisons: The Fed and the 1967 Rate Cuts
Some analysts have drawn comparisons between the current situation and the Federal Reserve’s premature rate cuts in 1967, which led to a broad-based inflationary period and eventually a recession. However, TS Lombard believes that today’s economic conditions differ significantly from those of the 1960s.
In contrast to the past, today’s nominal and real yields have increased, while traditional safe-haven assets like gold have hit record highs. This suggests that risk assets, including Bitcoin, may still have room to grow despite rising yields.
The Golden Cross: A Bullish Signal for Bitcoin
Amidst these concerns, Bitcoin’s technical indicators present a more optimistic outlook. The cryptocurrency’s 50-day SMA is on the verge of crossing above its 200-day SMA, signaling the formation of a Golden Cross. This pattern is widely regarded as a bullish signal, indicating that short-term price movements are outpacing long-term trends, which often leads to strong upward momentum.
While the Golden Cross is a lagging indicator, meaning it reflects past price movements rather than predicting future ones, it has historically preceded significant price rallies. Traders who held Bitcoin for a year following the first two Golden Cross formations and the one in May 2020 saw triple-digit percentage gains.
The most recent Golden Cross, which occurred in October 2023, was followed by Bitcoin doubling in price to reach an all-time high of over $73,000. This pattern suggests that despite recent setbacks, Bitcoin may be on the verge of another significant rally.
Criticism of the Golden Cross and Alternative Views
Despite the optimism surrounding the Golden Cross, some traders remain cautious. Critics argue that the indicator is backward-looking and may mislead traders into making poor decisions. They point out that while the Golden Cross has sometimes predicted large price increases, it is not always a reliable predictor of future performance.
Nevertheless, many in the cryptocurrency community still view the Golden Cross as a positive signal, especially when combined with other indicators, such as strong support levels and macroeconomic trends that favor Bitcoin as a store of value.
Bitcoin’s Role as a Hedge Against Inflation and Uncertainty
Bitcoin’s position as a potential hedge against inflation and economic uncertainty remains a key factor driving its demand. Even as traditional safe-haven assets like gold perform well, Bitcoin continues to attract investors looking for alternative ways to protect their wealth in the face of rising inflation and geopolitical tensions.
As the Federal Reserve navigates the complex interplay between inflation, employment, and interest rates, Bitcoin’s decentralized nature and fixed supply make it an attractive option for those seeking to diversify their portfolios away from traditional financial instruments.
Bitcoin’s Bullish Outlook Despite Yield Concerns
In conclusion, while concerns about rising U.S. Treasury yields and potential policy missteps by the Federal Reserve continue to weigh on some investors’ minds, the broader outlook for Bitcoin remains positive. The imminent formation of a Golden Cross, combined with Bitcoin’s historical performance in similar scenarios, suggests that the cryptocurrency may be poised for another rally.
TS Lombard’s analysis downplays fears of a policy mistake, emphasizing that current economic conditions are unlikely to trigger the kind of inflationary spiral seen in the 1960s. As a result, the path of least resistance for Bitcoin remains upwards, particularly as more investors view it as a hedge against inflation and macroeconomic uncertainty.
As Bitcoin approaches this critical juncture, traders and investors alike should watch closely for further developments in both the cryptocurrency market and the broader macroeconomic landscape.
