Bitcoin has given back all of the gains it made in late August, falling back to $77,000, according to analysts at QCP Capital, a Singapore-based digital asset trading firm that regularly publishes commentary on cryptocurrency and macroeconomic markets.
The late-August rally had been fueled by expectations that action from the US Department of the Treasury would ease conditions in the government debt market and draw capital into riskier assets such as cryptocurrency. The trigger for the intervention was a sharp jump in yields on long-term Treasury bonds. In August, the yield on 30-year Treasury bonds approached 5.3 to 5.33 percent, the highest level since 2007.
The US Treasury responded by announcing it would at least double the size of its buybacks of long-term government debt, raising the amount repurchased per operation from $2 billion to $4 billion. Treasury buybacks are used to reduce the supply of bonds on the market and support their price. The market initially reacted with a weaker dollar and a rising bitcoin price, but the effect proved short-lived.
Bessent Versus the Bond Market
QCP Capital's analysts attribute bitcoin's reversal to a standoff between US Treasury Secretary Scott Bessent, who oversees federal borrowing and debt management, and the broader bond market. The Treasury increased its buyback volumes in an effort to support bond prices and push down yields, but investors kept selling bonds, demanding a higher premium for holding long-term US debt. So far, the Treasury's efforts to lower borrowing costs have not produced the effect officials were hoping for.
High yields on US government debt make Treasury bonds more attractive relative to cryptocurrencies and other risk assets, the QCP analysts said. At the same time, borrowed financing has become more expensive, meaning less speculative capital is flowing into markets such as crypto.
Oil Prices and Federal Reserve Uncertainty
QCP Capital said the crypto market is facing additional pressure from oil prices above $100 a barrel. High energy costs keep inflation risks elevated and make it harder for the Federal Reserve, the US central bank, to ease monetary policy further. The analysts noted that disagreement within the Fed over the future path of interest rates is also weighing on sentiment in the crypto market.
Trading Volumes Still Lag Behind
The pullback follows a separate warning from a CryptoQuant analyst using the pseudonym Darkfost. CryptoQuant is a blockchain analytics firm that tracks exchange trading volumes and on-chain data. Darkfost said bitcoin's rise of more than 30 percent in August has not yet been matched by a comparable increase in market activity. Trading volumes on the largest cryptocurrency exchanges remain roughly 70 percent below their levels from October of last year, Darkfost said, meaning it is too early to say confidently that a new bull cycle has begun.
