Bitcoin Faces ‘Crucial’ 36 Hours Amid -53 Correlation to US Yields

Key Takeaway

• Bitcoin's 30-day correlation with the US 10-year Treasury yield is at minus 53, indicating heightened sensitivity to bond market movements.
• Bitcoin slid as much as 2.8% to $67,840 amid concerns over Fed rate decisions and key inflation data due Wednesday.
• Despite $15.6 billion inflows into Bitcoin ETFs since January, recent lack of upside progress raises alarm bells for investors.

Bitcoin's Correlation with Treasury Yields

Bitcoin's recent performance has been notably influenced by its inverse correlation with the US 10-year Treasury yield. The 30-day correlation between Bitcoin and the 10-year yield stands at minus 53, one of the most negative readings since 2010, according to Bloomberg data. This suggests that Bitcoin is moving in the opposite direction to the benchmark bond yield to an unusual degree. As the Federal Reserve's interest-rate decision and key US inflation figures approach, this correlation indicates potential volatility for Bitcoin. The digital asset slid as much as 2.8% to a one-week low of $67,840 on Tuesday, reflecting market jitters ahead of these pivotal economic events.

ETF Inflows and Market Sentiment

Bitcoin's price movements have also been influenced by significant inflows into US exchange-traded funds (ETFs) dedicated to the cryptocurrency. Since their launch in January, these ETFs have attracted a net $15.6 billion. However, on Monday, $65 million was pulled from these products, ending a 19-day streak of continuous inflows. Tony Sycamore, a market analyst at IG Australia Pty, expressed concern over Bitcoin's recent inability to reach new highs despite these substantial inflows, stating, "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 emphasized the importance of the next 36 hours, as the upcoming inflation data and Fed decision could significantly impact Bitcoin's trajectory.

Impact of Macroeconomic Data

The upcoming US inflation data and Federal Reserve policy outlook are critical for Bitcoin's near-term performance. The inflation figures are expected to show price pressures well above the Fed's comfort zone, which could influence the central bank's decision on interest rates. At the beginning of the year, investors anticipated multiple rate cuts by the Fed, but the current debate centers on whether any future easing will be minimal. An environment of higher borrowing costs for a prolonged period could pose challenges for speculative assets like Bitcoin, which has already more than quadrupled in value since the start of 2023. Katie Stockton, a technical analyst at Fairlead Strategies LLC, noted in a research report that Bitcoin's short-term momentum is "neutral" based on chart patterns, although the long-term outlook remains more positive.

Street Views

• Tony Sycamore, IG Australia Pty (Bearish on Bitcoin):

  "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. The next 36 hours is going to be crucial."

• Katie Stockton, Fairlead Strategies LLC (Neutral on Bitcoin short-term; Bullish long-term):

  "Neutral short-term momentum for the digital token based on chart patterns, while adding that long-term prospects are more positive."

• Anand Gomes, Paradigm (Bearish on crypto market sentiment):

  "The crypto market is like a junkie that constantly needs bullish news to stay up. So when there is none, the path of least resistance is lower."