Crypto investor Chang has raised concerns about macroeconomic factors that could potentially impede Bitcoin‘s upward trajectory. A significant issue identified by Chang is the instability in bond yields, exacerbated by the issuance of US Treasury bonds. The increase in bond yields, driven by ongoing US debt concerns and a higher supply of bonds, might pose challenges for various asset classes, including cryptocurrencies.
How Does Bond Yield Impact Bitcoin?
Recent data indicates that the 10-year Treasury yield rose by 24 basis points over two weeks, reaching 4.55%. Analysts warn that if yields climb above 4.7%, it could induce stock market volatility. Elevated bond yields usually result in higher borrowing costs, diminishing the allure of riskier investments like Bitcoin and tech stocks.
Chang forecasts continued yield fluctuations throughout June, which might tighten the correlation between Bitcoin and traditional equities. As the yield on two-year Treasury bonds nears 5%, macro investors may find it increasingly enticing to divert funds from riskier assets to safer government bonds offering stable returns.
What Could Investors Expect from PCE Data?
Attention is also focused on the upcoming release of the Personal Consumption Expenditures (PCE) price index, a crucial metric influencing Federal Reserve interest rate decisions. Scheduled for Friday, the PCE data is the Fed’s preferred inflation gauge. Should the PCE exceed expectations, it could further inflate bond yields, thereby decreasing investors’ appetite for riskier assets.
Forecasts suggest a 2.7% year-over-year rise in the April PCE Price Index, matching March’s level, along with a 0.3% monthly increase. Excluding food and energy prices, core PCE is projected to grow by 2.8% annually and 0.3% monthly. Any significant deviations could shift market sentiment and potentially alter expectations for interest rates.
Key Takeaways for Investors
- Monitor 10-year and 2-year Treasury yield movements closely for potential impacts on Bitcoin.
- Expect continued yield fluctuations, potentially leading to a tighter correlation between Bitcoin and traditional stocks.
- Pay attention to the PCE price index release, as it can influence Federal Reserve decisions and market sentiment.
- Consider the implications of higher bond yields on borrowing costs and investment strategies.
A significant rise in the core PCE could undermine the case for further interest rate cuts, contributing to a tightening of bond yields. At present, Fed funds futures reflect a modest 35 basis point rate cut expectation for the year.