US Real Yield Is At A 14-Year High, What’s Next For Bitcoin?

The United States real yield on 10-year Treasuries stands at 1.84%, the highest level in 14 years. On August 14, the “real yield,” which factors in inflation, rose by six basis points to multi-year highs, an increase that may prop the USD. In turn, the ripple effects of this development could heap additional pressure on Bitcoin prices.

Rising Real Yield Sparks USD Demand

The 10-Year Treasury Rate, representing the yield obtained from investing in a US government-issued 10-year treasury security, has reached 1.84%, marking a 14-year high. This value indicates that more individuals anticipate real interest rates to remain high, surpassing inflation readings over the next few years. 

As a result, discerning investors, especially institutions managing substantial portfolios of hundreds of billions, might increasingly turn to the USD for potentially higher returns. Commodity Futures Trading Commission (CFTC) data reveals that USD shorts are at an eight-month low, meaning more institutions are bullish on the currency.

The expected increase in demand for the greenback could wreak havoc on Bitcoin, which, looking at the candlestick arrangement in the weekly and daily charts, is fragile. It is especially so because the rise in the real yield of the 10-year Treasury comes when the broader cryptocurrency market is stagnant, and Bitcoin is in a tight range. 

Specifically, Bitcoin is flat-lining after the expansion in July 2023 that lifted the coin to new 2023 highs at around $31,800. Currently, BTC is boxed below the $30,000 psychological mark, and every attempt by bulls to stimulate demand and propel the coin to new heights has faltered.

Will Fed Rate Hikes And Destroy Crypto?

In July, the Federal Reserve, the United States central bank, increased interest rates to within the 5.50% to 5.75% range after a temporary pause in the last meeting. The goal was to tame the relatively high inflation above the benchmark 2% rate.

As real yields continue to rise, there’s a growing probability that the central bank will opt for more assertive measures to cushion citizens from runaway inflation. One way will be to increase interest rates, directly impacting Bitcoin’s liquidity and sentiment, potentially forcing prices lower.

Historically, higher interest rates dampen enthusiasm for riskier investments, including Bitcoin, the most liquid crypto asset. After ten consecutive rate hikes from 2022 to H1 2023, BTC prices more than halved. The bear trend could continue in the next fear months as the demand for the USD rises and institutions accumulate, protecting gains by banking on the world’s reserve currency.

Feature image from Canva, chart from TradingView