Bitcoin, Ether See Bull Breather as Higher Bond Yields Support Dollar

Hear Alex Thorn share his take on “Bitcoin and Inflation: It’s Complicated” at Consensus 2023.

Major cryptocurrencies traded with moderate losses Monday while the dollar index tracked Treasury yields higher as the market grew more comfortable with the Federal Reserve continuing its liquidity tightening cycle in May.

CoinDesk’s bitcoin (BTC) price index fell below $30,000, registering a 1.7% drop on a 24-hour basis. Ether (ETH), the native token of Ethereum’s blockchain – which successfully implemented the Shapella hard fork last week – fell by nearly 1.8% to $2,084.

The DeFi dominance index, which measures the market cap of a basket of top decentralized-finance coins as a percentage of the total market, held steady at around 4.3%, according to data source TradingView. The U.S. Securities and Exchange Commission (SEC) on Friday reopened a proposal from last year to target decentralized finance (DeFi) explicitly.

In traditional markets, the dollar index, which gauges the greenback’s exchange rate against majors, rose to 101.80, extending Friday’s 0.5% jump from 101.00. The yield on the two-year note gained nearly five basis points to 4.16%, extending the past week’s 15 basis points rise. The yield on the 10-year note rose to its highest level in a month at 3.54%. Bond yields began rising on Friday after Fed Governor Christopher Waller said the central bank hasn’t made much progress in bringing inflation down to its target of 2% and needs to lift interest rates further.

Traders priced an 85% probability the Fed will raise rates by 25 basis points to the new range of 5% to 5.25% versus 66% seen following the release of inflation data on Wednesday, according to the CME’s FedWatch tool. The central bank has lifted rates by 475 basis points in the past 12 months, injecting volatility into risk assets, including cryptocurrencies.

“The 10-year Treasury yield is quietly climbing back up,” Markus Thielen, head of research and strategy at crypto services provider Matrixport, said in a daily market update. “This needs monitoring in terms of a warning sign.”

“We would consider taking some profits as the crypto market is showing exuberant signs,” Thielen added. “Ideally, the delta should be replaced with upside call spreads in case prices continue to rally.”

Per Alex Kuptsikevich, senior market analyst at the FxPro, bitcoin may struggle to establish a foothold above the former support-turned-resistance of $30,000 in the short-term.

“Traders should be prepared that the $30,000 mark for the first cryptocurrency could act as solid resistance after it was rigid support in 2021,” Kuptsikevich said in an email.

Over the weekend, tech billionaire, Twitter chief and long-time crypto propounder Elon Musk said that U.S. government agencies had full ability to access Twitter user activity, including direct messaging (DM). The shocking revelation came days after social trading platform eToro announced plans to offer crypto trading services to Twitter users.

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