A crypto perfect storm? Bond yields, ETF news collide with bitcoin rally

Macro and macroeconomic conditions joined forces this week to create what appears to be a perfect storm for bitcoin’s price.

The price of bitcoin surged above $34,000 Tuesday for the first time since May 2022 as US bond yields hit a 16-year high and ongoing optimism about the prospects of a bitcoin ETF continued to grow.

Bitcoin (BTC) rallied nearly 14% in less than 24 hours between Monday and Tuesday, largely fueled, analysts say, by news that a spot bitcoin ETF may be here soon.

The iShares Bitcoin Trust was listed on the Depository Trust and Clearing Corporation, which clears Nasdaq trades, on Monday, Bloomberg Intelligence ETF analyst Eric Balchunas announced, sending traders into a frenzy. (It has since been removed.)

This development, in and of itself, does not mean an ETF is launching. But it was enough to move markets, according to Noelle Acheson, former head of research at Genesis Trading and author of the Crypto is Macro Now newsletter.

“This doesn’t necessarily mean that the ETF (ticker symbol IBTC) will start trading today, nor that it is imminent,” Acheson said. “But, you know, maybe. The possibility is waking up some investors.”

On the macroeconomic side, rising US bond yields — perhaps counterintuitively — have coincided with bitcoin’s rise.

“In theory, rising yields would be bad for BTC because they signal a tightening of monetary liquidity (which punishes risk assets), they draw funds away from non-yielding assets, and they boost the US dollar which is the denominator of the most-quoted BTC/USD pair,” Acheson said.

Early in the trading session Monday, US bond 10-year yields rose above 5% for the first time since 2007 before falling to around 4.8% Tuesday, coinciding with bitcoin’s rise.

Bond yield moves managed to push stocks higher, too, Tom Essaye, founder of Sevens Report Research noted. The Nasdaq Composite and S&P 500 indexes were trading about 0.8% and 0.7% higher Tuesday, coinciding with the 10-year’s decline.

Global moves — namely the Bank of Japan’s upcoming policy meeting — are also playing into US equity market moves, Essaye said, although its impact on crypto is less notable.

“While a lot of the early rise in the 10-year yield to 5.00% was momentum driven, there was a fundamental reason, too: the Bank of Japan,” Essaye said. “There is ‘chatter’ in the market that the BOJ may increase the limit on the 10-year Japanese Government Bond (JGB) at the meeting later this week.”

Still, crypto investors seem to be concerned about missing out on the rally, according to Acheson, so volatility should be expected.

“Let’s remember that BTC liquidity is not exactly high these days, so it wouldn’t take much to trigger strong moves,” Acheson added.

Updated, Oct. 24, 2023 at 13:00 — Added the Blackrock’s proposed ETF is no longer listed by DTCC.

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