bitcoin It started the year on a painful note, even as stock markets remained buoyant. But stock traders’ luck is now running out as rising bond yields put pressure on valuations.
Bitcoin prices plummeted to nearly $60,000 from around $90,000 in the first five weeks of the year, according to data from CoinDesk. The drop marked a sharp decoupling from the S&P 500 and Nasdaq, which were trading at or near record levels at the time.
Analysts wondered how long the divergence would last: whether bitcoin would recover quickly or whether the stock would eventually catch up to bitcoin’s weakness.
The latter seems to be happening. Since the war with Iran began on February 28, fears about inflation and fading expectations of Fed rate cuts have sent US Treasury yields sharply higher, putting pressure on stocks.
The stock market weakness, appearing weeks after the BTC crash, underscores the cryptocurrency’s role as a leading indicator of traditional risk assets. Traders in conventional markets often watch BTC to gauge overall risk sentiment, especially on weekends or during days when traditional exchanges are closed.
Yields rise, stocks fall
The yield on the 10-year US Treasury bond rose to 4.41% shortly before press time, the highest since August 1. The benchmark borrowing cost has increased by 48 basis points since the start of the war with Iran. The two-year US bond yield has risen 57 basis points to 3.94%.
Treasury bond yields are considered the benchmark for risk-free interest rates and the costs of borrowing in the economy, such as corporate bonds, mortgages, student loans, etc., are valued relative to Treasury bonds. So when yields rise, lenders often raise lending rates to maintain their spreads, raising borrowing costs for businesses and consumers. This leads to risk aversion in stocks, which we are starting to see now.
Futures linked to Wall Street’s Nasdaq technology index fell to 23,890 points early Monday, the lowest level since Sept. 11. S&P 500 e-mini futures fell to 6,505 points, also the lowest level since September.
CoinDesk recently highlighted that the price patterns of major stock indices bear a striking resemblance to the bitcoin price action that led to its crash. This similarity has sparked concern among analysts, suggesting the stock could be at risk of further declines if the pattern continues.
“Bitcoin has been at the top of the risk asset iceberg, and its collapsing price could be the first days of a broader decline, particularly if rising commodity volatility hits stocks,” Bloomberg senior commodities strategist Mike McGlone said in a recent report.
Stable Bitcoin
After crashing earlier this year, BTC has remained largely stable between $65,000 and $75,000 in recent weeks. At the time of writing, the cryptocurrency changed hands at $68,790.
However, prices in the options market are showing maximum fear, resulting in a record bias for put options or derivative contracts that offer protection against price declines in BTC.
