Bitcoin faces ‘crucial’ 36 hours on heightened sensitivity to US yields

Global markets are on tenterhooks ahead of a Federal Reserve interest-rate decision and key US inflation figures. Bitcoin investors have reason to be particularly alert for potential volatility.

A 30-day correlation between Bitcoin and the US 10-year Treasury yield is at minus 53, one of the most negative readings in data compiled by Bloomberg since 2010. The metric suggests the largest digital asset at present is moving in the opposite direction to the benchmark bond yield to an unusual degree.

Bonds may be buffeted by the inflation data and Fed policy outlook, which are both due in the space of a few hours on Wednesday. The correlation study hints at the risk of Bitcoin being tossed around in the Treasury market’s wake.

Bitcoin wobbled on Tuesday, sliding as much as 3.2% to a one-week low and hovering at $67,780 as of 8:38 a.m. in London. Smaller tokens such as Ether and meme-crowd favorite Dogecoin also nursed losses.

Bitcoin hit a record of $73,798 in mid-March, lifted by inflows into dedicated US exchange-traded funds. But it struggled for new highs in the past three months. For Tony Sycamore, a market analyst at IG Australia Pty, Bitcoin’s recent failed attempts to crack all-time peaks rings “alarm bells.”

‘Lack’ of progress

“The lack of upside progress in recent weeks is concerning given the significant inflows into Bitcoin ETFs recently which have thus far failed to turn the dial,” Sycamore said. “The next 36 hours is going to be crucial.”

A net $15.6 billion has poured into the ETFs since their January launch. On Monday, $65 million was pulled from the products, snapping a run of 19 straight days of subscriptions, according to data compiled by Bloomberg.

The inflation data are expected to show price pressures running well ahead of the US central bank’s comfort zone. At the turn of the year, investors were wagering on a slew of Fed rate reductions, but now the debate is whether future easing will amount to only a smallish tweak of policy.

An outlook of higher for longer borrowing costs could be a challenging backdrop for a speculative asset like Bitcoin, which has already more than quadrupled since the start of 2023 in a comeback from a deep bear market.

Fairlead Strategies LLC technical analyst Katie Stockton in a research note flagged “neutral” short-term momentum for the digital token based on chart patterns, while adding that long-term prospects are more positive.

The crypto market “is like a junkie that constantly needs bullish news to stay up,” said Anand Gomes, co-founder of Paradigm, a derivatives platform. “So when there is none, the path of least resistance is lower.”

© 2024 Bloomberg