Bitcoin shows resilience against rising bond yields, maintaining minimal correlation with them and demonstrating significant price growth since 2021.
Bitcoin continues to show resilience amid a global surge in bond yields, which traditionally would be seen as negative for the cryptocurrency. Recent data indicates that Bitcoin's correlation with bond yields is minimal, suggesting that it may serve as a diversifying asset.
Minimal Correlation with Bond Yields
The U.S. 10-year Treasury yield recently climbed to over 5.13%, the highest since 2007, with a 15 basis point increase influencing global yields. Conventional wisdom posits that rising yields increase the opportunity cost of holding non-yielding assets like Bitcoin. However, analysis from CoinDesk shows a 90-day correlation of just −0.18 between Bitcoin's daily returns and U.S. Treasury yields, indicating no significant relationship.
Longer-term correlations are also low, at −0.06 over 180 days and −0.03 over a year. This lack of correlation may actually benefit Bitcoin, positioning it as a valuable addition to investment portfolios, according to Lacie Zhang from Bitget Wallet. She noted, "Bitcoin’s near-zero correlation with U.S. Treasury yields is a genuine portfolio advantage."
Since 2021, Bitcoin has surged by 191%, reaching an all-time high of $126,000 last October, despite significant increases in bond yields across various countries, including over 500 basis points in the U.K. and France, and more than 400 in the U.S., Australia, Germany, and Italy.
Short-Term Volatility from Bond Markets
While Bitcoin's long-term correlation with bond yields is weak, it is not immune to short-term volatility, especially from bond market fluctuations. Recent turmoil in the bond market, particularly with U.S. Treasuries, has tightened financial conditions and increased borrowing costs, leading to a broader risk aversion among investors. The MOVE Index, which measures expected volatility in Treasury notes, recently rose by 21%, reflecting this heightened uncertainty. This was evident as Bitcoin's price dropped from $87,200 to $83,500, indicating market sensitivity to bond market movements.
Economic Indicators Driving Yields Higher
The recent rise in yields was primarily attributed to strong U.S. economic data rather than fiscal concerns. The S&P Global Composite PMI for September reached 58.4, up from 56.0 in August, signaling robust business activity and inflationary pressures. This data has reinforced expectations for further interest rate hikes from the Federal Reserve, contributing to higher yields across the board.
Interestingly, while U.S. data prompted the increase, yields in France rose even more significantly. The U.K. also saw comparable increases. Robin Brooks from the Brookings Institution noted that this trend reflects a broader market pattern where fiscally vulnerable countries react negatively to strong U.S. data.
Overall, while concerns about fiscal credibility and inflation persist in bond markets, these factors have not had a significant impact on Bitcoin's price movements over time. Bitcoin's ability to maintain its value amid rising bond yields underscores its potential as a diversifying investment.
