Analysis suggests that even if U.S. 10-year Treasury yields climb to 6%, it might not spell trouble for Bitcoin. The key lies in the reason behind the rate hike: if it’s due to fiscal instability rather than Federal Reserve tightening, Bitcoin could shine as an alternative asset.
Markus Thielen, founder of 10x Research, recently forecasted that U.S. 10-year Treasury yields could hit 6% in the coming months, according to CoinDesk on Tuesday.
Thielen explained that while Fed tightening-induced yield increases would hurt Bitcoin, the script flips if rates rise due to fiscal concerns and higher term premiums.
Term premiums represent the extra yield long-term bondholders demand for uncertainty. As inflation and government debt worries mount, investors may seek higher compensation, potentially driving up long-term Treasury yields.
Conventionally, rising Treasury yields put pressure on non-yield-bearing assets like Bitcoin and gold. Higher returns from safer Treasuries typically dampen the appeal of riskier investments.
However, the dynamics shift if rate hikes stem from widening fiscal deficits and eroding trust in government debt. In this scenario, concerns about U.S. fiscal health and dollar stability could fuel demand for alternative assets.
This played out in 2022 when the Fed’s aggressive rate hikes to combat inflation pushed 10-year Treasury yields above 3.88%, more than doubling. Bitcoin plummeted 64% that year, hit by both the Terra/Luna and FTX collapses and tightening pressures.
Interestingly, since late 2023, Treasury yields and Bitcoin prices have moved in tandem. The 10-year yield surged 1.35 percentage points to a 16-year high of 5.23%, while Bitcoin’s value nearly doubled.
Thielen cautions, however, against assuming that rising Treasury yields will always boost Bitcoin. If the Fed reverts to aggressive rate hikes, pushing yields higher, Bitcoin could face downward pressure reminiscent of 2022.