Rising Yields and Strong US Dollar Weigh on Bitcoin’s Trump Trade
As the New Year began, financial markets prepared for the inauguration of US President-elect Donald Trump amid heightened uncertainty. US Treasury yields surged to yearly highs, and risk assets struggled, fueled by speculation over potential tariffs under the incoming administration.
January opened with strong momentum as equities and digital assets surged, driven by optimism surrounding the so-called “Trump trade.” Investors anticipated a favorable environment for digital assets and corporate growth. However, this optimism faded quickly as US bond yields spiked, stalling the rally and causing digital assets and stocks to reverse earlier gains.
Bitcoin’s brief surge to $100,000 fizzled, with the cryptocurrency recording a 6% decline over the past 30 days. Other digital assets experienced even steeper losses. “Bitcoin’s correlation with US interest rates has historically been negative,” noted Eloísa Cadenas, chief innovation officer at Monetae, in an interview with Cointelegraph.
She explained that markets like Bitcoin depend on liquidity, and higher Treasury yields reduce global liquidity, making traditional instruments like bonds more attractive. Despite recent rate cuts by the Federal Reserve, its cautious outlook has added to market uncertainty, slowing the pace of risk asset recovery.
US Treasury yields have risen sharply, with 30-year Treasurys reaching a 14-month high and 10-year yields nearing 4.70%. This spike has pressured growth-oriented assets, triggering a broad market sell-off. Bitcoin, closely tied to stock indexes like the Nasdaq, reflects this pressure, with the correlation between Bitcoin and the Nasdaq currently at 64%, according to Robert Wallden, head of trading at Abra.
While volatility remains high across the digital asset spectrum, analysts like Wallden see buying opportunities if Bitcoin maintains support at $82,000.
The Trump administration’s cryptocurrency-friendly appointments could create a supportive environment for digital assets. However, concerns about the US deficit and potential tariff wars loom, raising risks for growth-sensitive markets.
Michael Strobaek, global CIO at Lombard Odier, expressed optimism, noting that falling interest rates and institutional support could bolster the sector. Meanwhile, Eloísa Cadenas emphasized that Bitcoin’s historical $5,000 range of fluctuation due to rate impacts pales in comparison to the $40,000 boost it received during Trump’s presidency.
Despite recent corrections, many in the crypto space remain hopeful that the Trump trade will regain momentum, with Bitcoin’s long-term prospects continuing to attract confidence.
What's Your Reaction?
