Bitcoin Bulls Face 6% Treasury Yield Risk as Analysts Flag Higher Rates

The direction of U.S. Treasury yields is not the only factor Bitcoin traders need to watch. The reason yields are climbing could matter just as much as how high they ultimately go.

The 10-year Treasury yield, which influences borrowing costs throughout the U.S. economy, has been trending higher for months. Some analysts now expect it could reach 6%, a level not seen since 2000.

At first glance, that could appear negative for bitcoin. However, the impact is more complicated.

For bitcoin and other assets such as gold that do not generate cash flow or an inherent yield, the market response can depend heavily on what is pushing Treasury yields higher.

If investors are demanding higher returns because of concerns about record government deficits rather than strong economic growth or aggressive Federal Reserve rate increases, that could reflect declining confidence in U.S. fiscal conditions. Over the longer term, that dynamic can support alternative assets such as bitcoin, which recent CoinDesk analysis found has generally maintained a weak correlation with Treasury yields.

“When yields rise because the Fed is tightening, bitcoin suffers. When yields rise on fiscal and term-premium concerns, the picture flips,” Markus Thielen, founder of 10x Research, said in a note to clients Tuesday. He expects the 10-year yield to reach 6% in the coming months.

Bitcoin’s Response Since 2022

Market performance since 2022 provides some support for Thielen’s distinction.

The 10-year Treasury yield more than doubled to 3.88% in 2022 as the Federal Reserve rapidly increased interest rates, including several 50- and 75-basis-point moves aimed at containing inflation.

Bitcoin dropped 64% that year. Higher yields and tighter monetary policy added to pressure from a series of crypto failures and scams.

The relationship has looked different since then. From the end of 2023, the 10-year yield has climbed 135 basis points to 5.23%, its highest level since 2007. During the same period, bitcoin has roughly doubled to around $86,000, despite retreating from its October peak above $126,000.

Thielen and other analysts have linked much of the latest increase in Treasury yields to concerns about U.S. fiscal conditions and a rising term premium. In practical terms, investors are demanding greater compensation for holding long-term government debt amid uncertainty surrounding inflation and the government’s borrowing needs.

Strategic Analytics, a Chicago-based firm, has made a similar argument regarding gold. The firm said gold has increasingly responded to fiscal risks rather than simply following the Federal Reserve’s policy direction since 2022.

“Since 2022, gold has increasingly tracked fiscal-risk perceptions – term premium, deficits, debt sustainability – rather than the Fed’s policy path. Gold is not defying real yields. It is pricing fiscal sustainability and currency debasement, which has become the marginal driver,” the firm said in a recent LinkedIn post.

Why Analysts See 6%

Expectations for a 6% 10-year yield are largely tied to concerns about government debt and strong nominal economic growth, which measures growth before adjusting for inflation.

Thielen noted that Treasury yields remain below nominal GDP growth, at 5.24% versus 6.56%, while federal debt has expanded at an annual rate of roughly 8.5% since 2020.

“The key point is that yields still sit well below nominal GDP growth (5.24% vs 6.56%), and far below the roughly 8.5% annual growth of federal debt since 2020, so bondholders are not yet being compensated for the pace at which the nominal economy and the debt stock are expanding,” Thielen said.

Dan Niles, founder of Niles Investment Management, also identified 6% as a plausible upside target for the 10-year Treasury yield during a CNBC appearance.

Niles cited federal deficits of roughly 6% of GDP and pointed to large AI-focused technology companies, known as hyperscalers, competing with the U.S. Treasury for funding in debt markets.

In simple terms, the government is issuing bonds to finance persistent deficits at the same time that major AI companies are seeking large amounts of capital. Competition for available funding can push borrowing costs higher and put additional upward pressure on Treasury yields.

For bitcoin bulls, however, the key risk is what happens if yields rise because the Federal Reserve resumes aggressive rate hikes. If that occurs, the market conditions that weighed heavily on bitcoin in 2022 could return.

About The Author