Bitcoin remains strong, but macro factors are at risk

      May 29-31, 2024 - The world's largest and most well-known crypto, blockchain and Web3 event in Austin, Texas. Chang, the crypto trader, said that the current rise in bond yields poses a risk to Bitcoin. Goldman Sachs notes that current yield levels could weigh on all assets.

While Bitcoin (BTC) is still trading near record highs, signaling a pause in a typical bull market, at least one observer is concerned that recent macroeconomic developments could prevent further gains. "Bitcoin is still strong, but macro factors are threatening it," said Chang, a crypto options trader and market analyst. "Bond yields are very volatile because demand is weak relative to U.S. Treasury issuance. If Bitcoin is negatively impacted, it could be due to yields and the dollar index." Treasury yields have been rising, largely due to ongoing U.S. debt problems, a large supply of bonds, and rising Japanese government bond yields. The yield on the benchmark 10-year Treasury note has risen 24 basis points to 4.55 percent in two weeks, according to charting platform TradingView. Several traditional market analysts said a yield above 4.7 percent could bring volatility to stocks.

 All else being equal, higher yields mean higher borrowing costs for individuals and businesses, making investing in relatively risky assets like bitcoin and tech stocks less attractive. Chang said he expects yields to remain volatile in June, ensuring a close correlation between bitcoin and stocks. Two-year yields are close to 5 per cent. Being able to lock in a 5% return in government bonds, which are considered safe investments, could convince macro traders to pull money out of stocks, cryptocurrencies, and other risky corners of the financial markets. "We are now at a level of yields where rising yields from here will really weigh on all asset classes," said Peter Oppenheimer of Goldman Sachs.

As a result, traders will be closely watching the Personal consumption expenditures (PCE) price index to guide the direction of the Federal Reserve rate. The data, the Fed's preferred measure of inflation, is scheduled for release at 8:30 a.m. Et (12:30 UTC) on Friday. The overall PCE price index is expected to have risen 2.7% year-over-year in April, unchanged from March, according to the FactSet consensus estimate. The forecast points to month-on-month growth of 0.3 per cent, down slightly from 0.32 per cent in March. The consensus for core PCE (which excludes food and energy prices) is for 2.8% annual growth and 0.3% month-on-month growth.

"The most important major event of the day is the PCE. It's the Fed's favourite number. The 2 per cent inflation target they're talking about is the PCE, not the CPI. If it beats expectations, people won't buy risk assets," Mr Chang said. Higher than expected core growth would weaken the case for renewed rate cuts, further hardening bond yields. At press time, Fed funds futures showed investors expecting just 35 basis points of rate cuts this year.