Key takeaways:
Bitcoin thrives when yields rise on debt and inflation fears, but struggles when central banks tighten aggressively.
Today’s bond market stress looks inflation- and debt-driven, suggesting BTC could follow gold’s record run with higher-beta gains.
Long-term government bond yields are ripping across the US, Europe, Japan and the UK, even as central banks slash policy rates.
The 30-year US Treasury is back near 5%, France’s long bond trades above 4% for the first time since 2011, and UK gilts are testing 27-year highs. Japan’s 30-year yield has reached record levels, prompting analysts to call it the “collapse of global G7 bond markets.”
But what happens to Bitcoin amid this concerning macroeconomic outlook? Let’s examine.
How Bitcoin reacted during past yield spikes
History shows that Bitcoin’s reaction to rising government bond yields depends on why yields are climbing. Sometimes it rallies like “digital gold,” other times it struggles like a risk asset.
Take the 2013 taper tantrum.
When the Federal Reserve hinted it would slow its money-printing program, the US 10-year yield shot toward 3%. Investors grew anxious about inflation and debt, a sentiment that aligned with Bitcoin’s price explosion from under $100 to over $1,000.
A similar story played out in early 2021.
Yields climbed as markets priced in higher inflation during the post-COVID recovery. Bitcoin moved in step with gold, surging to around $65,000 by April.
However, in 2018, the outcome was the opposite.
Yields rose above 3% not because of inflation or debt fears, but because the Fed was hiking aggressively. Real returns on bonds looked attractive, and Bitcoin plunged by about 85% during the same period.
It shows that Bitcoin behaves like a hedging asset with more upside when yields rise due to inflation, deficits or excess debt supply. Bitcoin usually struggles when yields rise because central banks are tightening into growth.
Are rising bond yields bullish for Bitcoin this time?
Bitcoin has risen by 4.2% in the past three days, moving in lockstep with a surge in long-term Treasury debt in the US and other G7 nations.
At the same time, its holder retention rate is climbing, showing that more traders are choosing to hold onto BTC as a hedge instead of selling.
The backdrop is hard to ignore. US government debt jumped from $36.2 trillion in July to $37.3 trillion by September, up by over $1 trillion in just two months.
Across the Atlantic, Europe and the UK are facing similar borrowing waves.
The result has been record-sized bond auctions that only clear at higher yields. This is a sign that demand for government bonds is weakening. UK’s 30-year bond yield, for instance, reached its highest level since 1998 on Wednesday.
Gold has already confirmed the shift in investor behavior, away from trusting government bonds and toward hard assets.
The metal’s surge to record highs above $3,500 this week shows that markets are actively hedging against runaway debt and inflation.
Historically, Bitcoin benefits from such capital rotations a little later than gold. But once it does, it moves faster and further than the precious metal, acting as the higher-beta refuge from monetary and fiscal excess.
Related: Winklevoss, Nakamoto-backed Treasury launches with 1,000 BTC
“The central banks are losing control of the long end of the curve,” noted Mark Moss, chief of Bitcoin Strategist at UK-based DeFi firm Satsuma Technology, adding:
“Looks like YCC (yield curve control) coming to a bond market near you soon. Going long Bitcoin is such an obvious move.”
Many analysts see Bitcoin reaching a record high of $150,000-200,000 by 2026.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
