CryptoSlate
The US 10-year Treasury yield touched 5.34% on Oct. 1, its highest since 2002, after rising almost 90 basis points in the third quarter. Bitcoin still gained about 43% over those three months, while Ethereum rose about 71%. US spot Bitcoin ETFs drew roughly $6.3 billion in the quarter, and Ethereum ETFs attracted about $3 billion. The divergence shows where the rate shock landed: less in spot prices than in the financing built around crypto.
Why it matters
A Treasury yield near 5% raises the return investors can earn without taking crypto risk. It also lifts the hurdle for leveraged trades and for Bitcoin treasury companies that use equity, preferred shares or convertible debt to fund purchases. Many of those companies trade at or below the net asset value of their holdings, making a model built on selling shares at a premium harder to sustain.
The pressure extends to DeFi. Research using Aave data found links between Treasury yields and stablecoin borrowing and deposit rates, although individual rates also depend on market supply and demand. A 4% or 5% DeFi yield must now compete with government debt while compensating investors for smart-contract, liquidity and other risks.
Market impact
The quarter's gains did not shield leveraged traders from abrupt losses. After a stronger PMI reading pushed yields higher on Sept. 23, Bitcoin slipped below $85,000 and long liquidations reached $510 million over 24 hours. On Sept. 25, open interest on selected exchanges fell 14.3% while Bitcoin held near $84,000.
Citi raised its 12-month Bitcoin forecast to $113,000 from $82,000, citing crypto activity, ETF inflows and gradual adviser and brokerage allocations. That demand supported spot prices through the yield climb. The test ahead is whether it can keep doing so while borrowing remains expensive and bond or oil shocks force leveraged positions to unwind.
Frequently asked questions
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How did Bitcoin perform as Treasury yields rose in the third quarter?
Bitcoin gained about 43% during the quarter, while the US 10-year Treasury yield climbed almost 90 basis points and touched 5.34% on Oct. 1.
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How much flowed into US spot crypto ETFs in the third quarter?
US-traded spot Bitcoin ETFs drew roughly $6.3 billion, while Ethereum ETFs attracted about $3 billion.
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Why do higher yields strain Bitcoin treasury companies?
Higher yields increase the returns investors demand on equity and debt. That raises financing costs for companies that fund Bitcoin purchases, particularly when their shares trade at or below the net asset value of their holdings.
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What happened to leveraged Bitcoin positions during the yield shocks?
After yields rose on Sept. 23, Bitcoin slipped below $85,000 and long liquidations reached $510 million over 24 hours. Open interest on selected exchanges fell 14.3% on Sept. 25.
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Why must DeFi yields compete harder with Treasury debt?
A Treasury yield near 5% gives investors an alternative to DeFi products. DeFi returns must also compensate them for smart-contract, liquidity and other risks.
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