Crypto outlook clouded by 5.2% Treasury yield and stalled US bill

The US 10-year Treasury yield has reached 5.2% during trading, raising questions about whether crypto can hold its recent gains while another Federal Reserve rate hike remains possible and a major US digital asset bill is stalled.

Summary

• The 10-year Treasury yield reached 5.2% during trading on Sept. 24 as oil prices rose and Fed officials kept another rate hike in view.
• Bitcoin traded near $84,000 after retreating from $87,000, while recent ETF inflows showed that demand had continued despite higher yields.
• The Senate has yet to advance the CLARITY Act, leaving crypto firms waiting for legislation as the SEC and CFTC pursue separate rules.

The US Treasury recorded a 10-year yield of 5.18% on Sept. 24, up from 5.11% a day earlier. The 30-year yield closed at 5.47%, its highest level since 2004. The 10-year yield reached 5.20% during the session before ending below that level.

Bitcoin traded around $84,000 after retreating from the $87,000 area earlier in the week. The pullback has been limited so far, but higher bond yields have arrived at a time when investors are watching whether recent buying through US spot Bitcoin funds will continue.

Why are Treasury yields rising?

Oil prices climbed on Sept. 24 after a Houthi missile attack on Saudi Arabia renewed concerns about supply. Brent crude futures settled at $106.60 a barrel, up $3.52, while West Texas Intermediate crude finished at $94.61, up $2.45. Prices eased from their intraday highs following reports of US-Iran discussions about reopening the Strait of Hormuz.

Higher energy costs have kept inflation in focus for the Federal Reserve. Philadelphia Fed President Anna Paulson said on Sept. 24 that underlying inflation was running around 2.5% to 3%, above the central bank's 2% target. Paulson supported last week's quarter-point rate hike and said modest further tightening may be warranted if economic conditions develop as she expects.

New York Fed President John Williams described another hike before the end of the year as a reasonable expectation, though he said the decision would depend on incoming data. The Fed raised its benchmark rate to a range of 3.75% to 4.00% on Sept. 16, and its latest projections indicated that another increase could follow this year.

Recent economic figures have done little to settle the question. Initial claims for unemployment benefits fell to 197,000 in the week ended Sept. 19, according to the Labor Department. S&P Global's preliminary US composite purchasing managers' index rose from 56.0 in August to 58.4 in September, pointing to the fastest growth in business activity in more than five years.

The Census Bureau estimated that August new home sales rose 6.4% from July. Its stated margin of error was wider than the reported monthly change, so that estimate alone does not establish a firm rise in housing demand.

Can crypto hold up while bond yields climb?

A 10-year Treasury yield near 5.2% gives investors a higher return on US government debt at the same time that further Fed tightening remains under discussion. Bitcoin's response has been mixed. It rallied after the Sept. 16 rate hike and moved above $82,000 this week, but later fell back from the $87,000 area.

As previously reported by crypto.news, wallets holding 100 to 1,000 BTC had accumulated 113,950 BTC between July 15 and Sept. 24. US spot Bitcoin exchange-traded funds recorded their fifth consecutive session of net inflows on Sept. 23. Both figures point to buying during the rally, though neither establishes how investors will respond if yields continue to rise.

Demand through the funds has varied considerably this month. Bitcoin ETFs ended the Sept. 14 to Sept. 18 week with roughly $6.1 million in net inflows despite taking in $433 million on its final trading day. The subsequent run of positive sessions accompanied Bitcoin's move higher. HashKey Group senior researcher Tim Sun said short-term ETF flows often follow Bitcoin's price instead of reliably predicting its next move.

Buying after the Fed decision came from several parts of the market, including spot investors, ETF buyers and traders closing short positions. The rally showed that last week's rate increase did not prevent Bitcoin from gaining. Its retreat from $87,000 leaves the durability of that demand open to another test as Treasury yields rise.

US shares offered little indication of a broad selloff on Sept. 24. The S&P 500 slipped 0.02%, the Nasdaq Composite gained 0.01% and the Dow Jones Industrial Average fell 0.31%, despite the rise in borrowing costs.

Regulatory uncertainty remains another pressure point

Higher Treasury yields are testing demand for crypto just as the industry faces a longer wait for US market rules. The Senate failed to advance the Digital Asset Market Clarity Act on Sept. 15, with 49 senators voting for the procedural motion and 50 against. It needed 60 votes to proceed. The bill would define how the Securities and Exchange Commission and the Commodity Futures Trading Commission oversee digital asset markets.

The vote did not stop Bitcoin's subsequent rally, but it left firms and investors without the legislation they had expected Congress to consider. Seven Senate Democrats reopened negotiations after the vote, though no new vote has been secured. Fireblocks US policy director Jessica Martinez said companies would continue developing products without the bill, while legislation would give them rules with more staying power than agency decisions.

Regulators have continued work as the market weighs the prospect of another Fed hike. The CFTC submitted proposed crypto market rules for White House review on Sept. 18, a step that precedes any commission vote or public comment period. The SEC has issued an exemption for certain tokenized securities activity. Neither action resolves the Senate bill, leaving the timing of a federal market structure law unsettled while crypto investors assess higher yields.

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