Bitcoin Weekly Outlook: T-Bonds Threaten Crucial BTC/USD Support

Key Bitcoin Takeaways:

• Bitcoin fell wildly last week as the US dollar capitalized on rising Treasury bond yields.
• Nonetheless, dip-buying sentiment near a technical support level kept the cryptocurrency’s bullish bias intact.
• A further rise in yields could have bears test the support area for a breakdown.

The BTC/USD exchange rate logged a sharp rebound and erased a major portion of its previous week’s losses on Monday. It was able to close the Sunday session above $45,000, a level that falls inside the support area that has capped Bitcoin’s bearish attempts from turning a full-fledged sell-offs.

Nevertheless, the cryptocurrency fell by up to 26.30 percent after settling its record high above $58,000 on February 21. There was a clear indication of profit-taking across all the riskier markets, including technology stocks. The carry trades themselves came in the wake of a late-week US dollar rally, buoyed by a dramatic rise in the Treasury yields so far this year.

US 10-year Treasury note yield corrected lower at the end of last week. Source: US10Y on TradingView.com

The interest rate on the benchmark 10-year note jumped from 1 percent at the beginning of 2021 to over 1.6 percent ahead of February close, its highest level in a year. Its uptick reduced the appeal of Bitcoin, a non-yielding asset, as it already traded at overvalued levels.

That led to a massive downside correction, with the price dipping to as low as $43,016 in the previous session. However, a correction in 10-year note yields at the end of last week and the beginning of the new one coincided with an uptick in the Bitcoin markets.

Technical Support Held

The inverse moves between the 10-year note yield and Bitcoin this week do not guarantee a negative correlation. More so, they have to do with a strong buying sentiment in the Bitcoin markets inside a provable support area highlighted in the chart below.

Bitcoin regains the support area that last sent its prices to record highs. Source: BTCUSD on TradingView.com

So far, the range has capped bears from extending their sell-off bias. Many analysts see it as a validation that Bitcoin’s ongoing correction won’t last. Instead, bulls will take over the market and push the prices back to their recent record levels.

“Even in this correction, the outflow of Bitcoin from exchanges is still heavy,” argued Michaël van de Poppe, an independent market analyst. “This means that people are buying their Bitcoin to hold in cold storage as an investment vehicle and those are not selling. We’re still early. In a healthy correction.”

Bitcoin This Week

Santiment notes that Bitcoin’s 30-day correlation with the US stock market has grown stronger lately. At the core of their copycat trends lies—again—the rising bond yields.

The first big impetus comes from the improving vaccine rollout across the world, reigniting hopes of faster-than-expected economic recovery once life goes back to normal. Then, the Democrats took control of the US Senate, making it possible for president Joe Biden to pass his ambitious $1.9tn stimulus that would further balm the economy.

It has pushed the inflation expectations higher, causing a sell-off in the bond markets in recent weeks. It also comes as investors fear that the Federal Reserve would tighten their monetary policies more quickly than previously reported. The central bank chairman Jerome Powell has indicated that his office would keep rates lower until they push the inflation above 2 percent.

Underscoring this tense climate is recent wild swings in the tech stock and Bitcoin markets and growth in shares that lost the most during the pandemic. Santiment notes:

“As we’ve noted in previous data studies, BTC rallies tend to be the most prominent when [the cryptocurrency’s correlation with the US stocks] turns negative, as it did in December 2020.”

Bitcoin fluctuates in line with the S&P 500. Source: Santiment

Erratically, a further rise in US bond yields could push the Bitcoin prices lower. Should it happen, the pressure to maintain the upside bias would fall on the technical support area, as mentioned above. Else, the price risks fall to $40,000 or lower.