The 10-year Treasury yield, which affects borrowing costs across the U.S. economy, has been rising for months, and some analysts now think it's headed to 6%, a level last seen in 2000.
That might sound like bad news for bitcoin BTC$84,117.13. Not necessarily.
The effect on bitcoin and on assets like gold, which have no cash flow or built-in yield, depends on what is driving yields higher.
If investors want higher yields because they're worried about record deficits, rather than a booming economy or Fed rate hikes, that's a vote of no confidence in U.S. government finances. That's the bull case for alternatives like bitcoin, which over the long term has been largely uncorrelated with yields, a recent CoinDesk analysis showed.
"When yields rise because the Fed is tightening, bitcoin suffers. When yields rise on fiscal and term-premium concerns, the picture flips," Markus Thielen, founder of 10x Research, said in a note to clients Tuesday, forecasting a rise in the 10-year yield to 6% in the coming months.
Market action since 2022 backs Thielen's take. The 10-year yield more than doubled to 3.88% that year as the Fed raised interest rates rapidly, including several 50- and 75-basis-point hikes to fight inflation.
Bitcoin fell 64% that year. Fed tightening and rising yields added to the pain from crypto scams and blowups.
The picture has been different since. From the end of 2023, the 10-year yield has risen 135 basis points to 5.23%, the highest since 2007. Over the same stretch, bitcoin has roughly doubled to $86,000, even after pulling back from its October record above $126,000.
Thielen and others attribute much of the recent rise in yields to fiscal fears and a higher term premium. In plain English, investors want to be paid more to lock up their money in long-term bonds, given the uncertainty over inflation and government borrowing.
Chicago-based Strategic Analytics made a similar point about gold, noting that it has tracked fiscal risk more closely than the Fed's policy path since 2022.
"Since 2022, gold has increasingly tracked fiscal-risk perceptions – term premium, deficits, debt sustainability – rather than the Fed's policy path. Gold is not defying real yields. It is pricing fiscal sustainability and currency debasement, which has become the marginal driver," it said recently in a LinkedIn post.
Forecasts of a 6% 10-year yield rest mainly on debt concerns and strong nominal growth, meaning growth not adjusted for inflation.
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