en.cryptonomist.ch
In the last few days, there has been a significant drop in the price of Bitcoin.
The decline started on Monday, especially after the reopening of the stock exchanges following the weekend closure.
At first, the price of BTC dropped from $71,000 to $69,000, but then it also dropped to $68,000. However, yesterday the decline continued, with a drop even below $65,000.
This decline seems to have stopped yesterday afternoon, after the opening of the US stock market.
Summary
The role of US Treasury on the movement of Bitcoin price
The Treasury Bond (also known as T-bond) are long-term US government debt securities.
These are bonds that pay a semi-annual coupon, and yesterday the yield on the 10-year T-bond (US10Y) reached a peak of almost 4.4% annualized in 2024.
The current level has not been seen since November of last year, even though a month earlier it had even reached almost 5%.
By the end of 2023, however, the annual performance had dropped below 3.8%, before starting to rise again from the beginning of January.
During the first months of 2024, the cord has almost constantly risen, although not in a linear way, with a trend very similar to that of the Dollar Index (DXY).
Indeed, at the end of February it had slightly decreased, but only to rise again shortly before mid-March.
During the January rally, the price of Bitcoin essentially traded sideways, dropping from $45,000 to $40,000, while in February it then began its first significant climb of the new year to over $50,000, precisely coinciding with the slight decline in T-bond yields and the dollar.
Also during this descent, the last rally of the Bitcoin price had started, which in the first two weeks of March had brought it above $70,000.
The drop of the past few days
Just in the days before Bitcoin’s price hit a new all-time high, T-bond yields started to rise again.
At first, the Dollar Index remained stable, but starting from March 14th, the day of BTC’s all-time high, even the Dollar Index started to rise.
Until March 19th both US10Y and DXY were rising, just as BTC was falling.
Starting from March 20, US10Y experienced a small decline, while DXY continued to rise. It was precisely in those days that the first correction of the BTC price after the ATH stopped.
Actually, starting from March 23, when the Dollar Index also stopped rising, the price of Bitcoin recorded a small rebound that brought it back above $70,000.
The situation changed on Monday, when first US10Y and then DXY started to rise again. At that point, the price of Bitcoin began to fall again, although the correction in recent days was lower than that at the end of March.
The reasons for the drop in the price of Bitcoin (BTC)
The hypothesis is that the increase in T-bond yields has generated a capital outflow from risk-on assets, such as Bitcoin.
T-bonds are considered risk-off investments, and when they offer an interesting yield they become very attractive precisely because of their low-risk nature.
For example, even during 2022, as the Fed interest rates increased, the yield of T-bonds rose from 1.3% to over 4%, and this may have influenced the bear market of Bitcoin.
The end of 2022 saw US10Y stop growing, and the bear market of BTC came to a halt.
At this moment, it is difficult to imagine whether the performance of US T-bonds will continue to rise, or once again reverse the trend.
The problems of ETFs
Yesterday for the first time since the new Bitcoin spot ETFs exist, the one with the highest outflows was not Grayscale’s GBTC.
In fact, while GBTC recorded outflows of $82 million, yesterday ARKB by Ark recorded a whopping $88 million in outflows.
However, these numbers pale in comparison to the $302 million in daily outflows recorded the day before by GBTC alone.
Overall on Monday, outflows of $85 million were recorded from all Bitcoin ETFs, but almost all of them came from Grayscale’s.
The previous week, instead, constant total inflows were recorded, while the week before that constant total outflows were recorded.
It is worth noting that since January 11, when they were launched on the US stock exchanges, a total of 12 billion dollars in inflows have been recorded, but in contrast to 15 billion dollars in outflows from GBTC alone.
In other words, all outflows from GBTC are offset by inflows into other ETFs, and overall inflows exceed outflows in the end, but not every day.
However, these dynamics seem to be driven by the price of BTC, and not vice versa. Instead, the movements of capital entering or exiting, for example, from T-bonds could be at the root of its performance.