Bitcoin Rallies Back Towards $50,000 As Bond Sell-Off Cools Off

Bitcoin bounced back, almost hitting $50,000 after last week’s turbulent trading, triggered by a sell-off in the US Treasurys and fears of the Federal Reserve tightening monetary policies.

The globally-recognized benchmark cryptocurrency gained up to 9.33 percent to reach an intraday high of $49,451, rebounding from the previous week’s fall of more than 21 percent. Meanwhile, its top rivals, including Ethereum, Cardano, Polkadot, and Binance Coin also rebounded higher.

Bond Market Sell-Off

The gains for Bitcoin and the rest of the cryptocurrency market followed a rebound in the US government debt prices this week. The yield on the benchmark 10-year Treasury note surged up around 0.03 percent to reach 1.43 percent on Monday. Nevertheless, it remained much below its 12-month high of $1.614 percent achieved last week.

William Sels, chief investment officer at HSBC’s private bank, noted that bonds pretty much drove the riskier markets haywire in recent days, adding that they continue to play an important role. Meanwhile, he added that additional stimulus from global central banks and governments still provide risk-on assets enough fuel to continue their rallies.

For instance, in Australia, the central bank announced it would buy $3 billion in long-term debts, almost double the usual amount, to ease a sell-off in its bond markets. The Australian 10-year yield slipped almost 0.25 percent in response to 1.63 percent. It was at 1.973 percent last Friday.

The European Central Bank also announced that it would intervene by increasing the pace of its emergency bond purchases after yields in eurozone countries touched new sessional highs.

The US Federal Reserve has not released a statement on how it would counter the rising bond rates. Nevertheless, some Fed officials, including the chairman Jerome Powell, have scheduled speeches this week that would shed more light on the matter.

Risks for Bitcoin

Robert Buckland, the chief global equity strategist at Citigroup, expects the global yields to rise further, posing risks for assets that did well during the coronavirus pandemic. That includes Bitcoin, which has also formed a positive correlation with the US stocks market, spurring fears that both the markets would go down amid bonds sell-off.

“The relationship between the price of Bitcoin and traditional stocks remains higher than the historical norm,” wrote data analytics platform Santiment. “As we’ve noted in previous data studies, BTC’s rallies tend to be the most prominent when this correlation turns negative, as it did in December 2020.”

Nevertheless, Bitcoin bulls expect the rally to continue against the prospect of rising inflation, primarily after the US Congress approves President Joe Biden’s $1.9 trillion stimulus package.

“More monetization of the debt by the Fed coming this year,” said Nick, the author of the Ecoinometrics newsletter. “In that environment, I can only see the narrative for Bitcoin as a hedge against the risk of inflation strengthening.”