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Bitcoin faces ‘pivotal’ 36 hours due to increased sensitivity to US yields
(Bloomberg) — Global markets are on edge ahead of the Federal Reserve’s interest rate decision and key U.S. inflation data. Bitcoin investors have reason to be especially alert to potential volatility.
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A 30-day correlation between Bitcoin and the 10-year U.S. Treasury bond 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 is currently moving into the opposite direction to the benchmark bond yield at an unusual level.
Bonds could be hit by inflation data and the Fed’s policy outlook, both expected within hours on Wednesday. The correlation study suggests the risk of Bitcoin getting tossed in the wake of the Treasury market.
Bitcoin fluctuated on Tuesday, sliding as much as 3.2% to a one-week low and settling at $67,780 at 8.38am in London. Smaller tokens like Ether and meme favorite Dogecoin also posted losses.
Bitcoin hit a record high of $73,798 in mid-March, thanks to inflows into dedicated US exchange-traded funds. But it has struggled to hit new highs over the past three months. For Tony Sycamore, market analyst at IG Australia Pty, Bitcoin’s recent failed attempts to surpass all-time highs sound like a “wake-up call”.
“Lack” of progress
“The lack of upside progress in recent weeks is concerning given the recent significant inflows into Bitcoin ETFs that have so far failed to turn the tide,” Sycamore said. “The next 36 hours will be crucial.”
Since their launch in January, a net $15.6 billion has been poured into ETFs. On Monday, $65 million was pulled from products, breaking a streak of 19 consecutive days of subscriptions, according to data compiled by Bloomberg.
Inflation data is expected to show price pressures well above the US central bank’s comfort zone. At the start of the year, investors were betting on a round of Fed rate cuts, but now the debate is whether future easing will amount to just a small policy tweak.
A higher outlook for long-term borrowing costs could pose a challenging scenario for a speculative asset like Bitcoin, which has already more than quadrupled since the start of 2023 as it recovers from a deeply bearish market.
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Katie Stockton, a technical analyst at Fairlead Strategies LLC, in a research note marked short-term momentum “neutral” for the digital token based on chart patterns, adding that the long-term outlook is more positive.
The cryptocurrency market “is like a drug addict who constantly needs bullish news to stay on his feet,” said Anand Gomes, co-founder of Paradigm, a derivatives platform. “So when there is none, the path of least resistance is lower.”
–With assistance from Ryan Weeks and Sidhartha Shukla.
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