Analysis: Rising US Treasury Yields Weigh on Bitcoin, but Could Strengthen Its Long-Term Case

A sharp rise in long-term government bond yields in the U.S. and other major economies is putting short-term downward pressure on Bitcoin, but it could also enhance the long-term appeal of scarce assets such as the cryptocurrency, according to an analysis.

BLOFIN Research said in a recent report on September 7 that higher Treasury yields are a short-term negative for Bitcoin, but over time they reinforce the investment thesis around currency debasement. The report added that liquidity will ultimately be the key factor determining Bitcoin's direction.

Long-term government bond yields in the U.S., Japan and Europe have recently climbed to their highest levels in years or even decades, with the yield on 30-year U.S. Treasuries at one point topping 5.3%. Over the same period, Bitcoin fell to the $77,000 level, while risk assets including U.S. stocks and technology shares also weakened.

BLOFIN Research said high bond yields are eroding the appeal of risk assets. With investors able to earn about 5% on long-term U.S. Treasuries, the incentive to take additional risk declines. As a result, some liquidity could flow out of volatile assets such as Bitcoin and tech stocks.

The report added that rising yields increase funding costs while lowering the present value of future returns. Even if Bitcoin is viewed as a monetary asset over the long term, it still behaves like a risk asset in the short run and remains sensitive to liquidity and funding costs.

Still, BLOFIN Research said rising bond yields could ultimately strengthen Bitcoin's investment case.

The firm said the U.S. Treasury has already expanded long-term bond buybacks, though not to a degree comparable with quantitative easing. Even so, if Treasury yields continue to rise, the likelihood of stronger measures could increase, including larger buybacks, changes to the maturity structure of Treasury issuance, and potentially monetary easing by the Federal Reserve.

BLOFIN Research said Bitcoin's direction will depend in particular on whether confidence in government debt weakens and whether policy intervention expands. The report said Bitcoin is currently caught between two forces: attractive risk-free yields offered by elevated bond rates and expanding fiscal burdens. Its short-term direction can shift quickly, and the next major move will ultimately depend on where liquidity goes.