Bitcoin started the year on a painful note, although the stock markets remained good. But stock traders’ luck is now running out as rising bond yields pressure valuations.
Prices for bitcoin fell to nearly $60,000 from around $90,000 in the first five weeks of the year, according to CoinDesk data. The drop marked a sharp decoupling from the S&P 500 and Nasdaq, which were trading at or near record highs at the time.
Analysts wondered how long the divergence would last — whether bitcoin would quickly bounce back, or whether stocks would eventually catch up to bitcoin’s weakness.
The latter seems to be happening. Since the Iran war began on February 28, fears about inflation and fading expectations of Fed rate cuts have pushed US Treasury yields sharply higher, putting pressure on stocks.
The stock market’s weakness, evident weeks after BTC’s fall, underscores the cryptocurrency’s role as a leading indicator of traditional risk assets. Traders in conventional markets often look to BTC to gauge overall risk sentiment, especially on weekends or on days when traditional exchanges are closed.
Interest rates rise, stocks fall
The yield on the 10-year US Treasury note rose to 4.41% shortly before press time, the highest since August 1st. The benchmark borrowing costs have increased by 48 basis points since the start of the Iran war. The US two-year interest rate has risen 57 basis points to 3.94%.
Government bonds are considered the benchmark for risk-free interest rates, and borrowing costs in the economy, such as corporate bonds, mortgages, student loans, etc., are priced in relation to government bonds. So when interest rates rise, lenders typically raise interest rates on loans to maintain their spreads, pushing borrowing costs higher for businesses and consumers. That leads to risk aversion in stocks, which we are starting to see now.
Futures tied to Wall Street’s tech-heavy Nasdaq index fell to 23,890 points early Monday, the lowest since Sept. 11. S&P 500 e-mini futures fell to 6,505 points, also the lowest since September.
CoinDesk recently highlighted that the price patterns of major stock indexes bear a striking resemblance to bitcoin’s price action that led to its crash. This similarity has raised concerns among analysts, suggesting that stocks could be at risk of further declines if the pattern continues to play out.
“Bitcoin has been at the tip of the risk-asset iceberg, and its collapsing price could be the early days of a broader downturn — especially if rising commodity volatility trickles down to stocks,” Bloomberg senior commodities strategist Mike McGlone said in a recent report.
Bitcoin stable
After crashing early this year, BTC has largely held steady between $65,000 and $75,000 in recent weeks. At the time of writing, the cryptocurrency changed hands at $68,790.
Still, pricing in the options market is showing peak fear, resulting in a record bias for put options or derivative contracts that offer protection against price declines in BTC.
