Today’s Bitcoin Update: BTC Surge Expected Amid Rising Bond Yields

Rising yields on government bonds, particularly U.S. treasury notes, have typically posed challenges for bitcoin (BTC) and similar high-risk investments.

Nonetheless, analysts are indicating that the recent sustained strength in treasury yields may reflect underlying factors that could actually be favorable for bitcoin.

Data from the U.S. published on Tuesday revealed that the consumer price index (CPI) increased by 0.2% on a month-over-month basis for both headline and core metrics in April, which was lower than the anticipated 0.3%. This led to a headline inflation rate of 2.3% year-over-year, marking the lowest level since February 2021.

In contrast, prices for the 10-year treasury yield, a crucial market indicator affected by inflation, fell, causing the yield to rise to 4.5%, its highest level since April 11, according to information from TradingView.

This trend has become evident in recent weeks: elevated yields persist despite discussions surrounding suspensions of tariffs, negotiations between the U.S. and China, and a slowing inflation rate. (The 10-year yield jumped from 3.8% to 4.6% at the beginning of last month as trade hostilities prompted investors to move away from U.S. assets.)

The increase in what is often seen as a risk-free rate typically raises concerns about capital shifting away from stocks and other higher-risk investments, including cryptocurrencies, toward bonds.

Increased fiscal spending

Nonetheless, the recent surge in yields is attributed to expectations of ongoing fiscal expansion during the administration of President Donald Trump, as noted by Spencer Hakimian, founder of Tolou Capital Management.

“Bonds falling on a weak CPI day indicate a significant fiscal expansion,” Hakimian expressed on X. “Everyone is aiming for victory in the midterm elections, disregarding debt and deficits. This bodes well for Bitcoin, Gold, and Stocks, while hurting Bonds.”

Hakimian pointed out that Trump’s tax strategy could potentially increase the fiscal deficit by an additional $2.5 trillion. In essence, fiscal policies under Trump are expected to maintain a similar expansionist nature as those under Biden, serving as a boost for risk assets, including bitcoin.

Bloomberg reported details about the tax cut plan earlier this week, which suggested $4 trillion in tax reductions balanced against approximately $1.5 trillion in spending cuts, leading to a net fiscal expansion of $2.5 trillion.

Arif Husain, head of global fixed income and chief investment officer at T. Rowe Price, observed that market focus will soon shift strongly towards fiscal expansion.

“While fiscal expansion may support growth, it is more critically likely to place additional pressure on the treasury market. I am becoming increasingly convinced that the yield on 10‑year U.S. treasury notes could reach 6% within the next 12 to 18 months,” Husain remarked in a blog entry.

National debt concerns

An anonymous analyst at EndGame Macro observed that the consistently high treasury yields signify fiscal dominance, an approach previously mentioned by economist Russel Napier and Arthur Hayes, co-founder of Maelstrom.

According to EndGame Macro, “When the bond market demands increased yields even amidst declining inflation, it’s not solely about inflation but rather the sustainability of U.S. debt issuance itself.”

This analysis highlights that rising yields can create a feedback loop of escalating debt servicing expenses, prompting further debt issuance and heightened rates, significantly increasing the likelihood of a sovereign debt crisis.

Bitcoin, often considered a counter-establishment asset and a viable alternative investment, could potentially appreciate in this context.

Furthermore, should yields continue to escalate, the Federal Reserve and U.S. government may need to adopt yield curve control measures, such as actively buying bonds to limit the 10-year yield from surpassing a specified threshold, say 5%.

This would result in the Fed committing to purchasing additional bonds whenever yields threaten to exceed 5%, inadvertently enhancing liquidity in the financial environment and stimulating demand for assets like bitcoin, gold, and stocks.