Bitcoin Is Still Strong, but Macro Factors Pose Risk, Crypto Analyst Says

While bitcoin (BTC) continues to chop at elevated price levels just below record highs, suggesting a typical temporary bull-market pause, at least one observer is worried that recent macroeconomic developments could impede a move higher.

"Bitcoin is still strong, but macro factors are threatening," crypto options trader and market analyst Chang told CoinDesk in an interview. "Bond yields are very unstable as the demand is weak compared to U.S. Treasuries issuance. If there is a negative impact on bitcoin, it will likely be due to yields and the dollar index."

Treasury yields have been rising, predominantly due to persistent U.S. debt concerns, the deluge of bond supply and the uptick in Japanese government bond yields. The yield on the benchmark 10-year Treasury has climbed 24 basis points to 4.55% in two weeks, according to data from charting platform TradingView. Several traditional market analysts say a move above 4.7% could inject volatility into stock markets.

Other things being equal, elevated yields translate into higher borrowing costs for individuals and companies and dent the appeal of investing in relatively risky assets like bitcoin and technology stocks. Chang said he expects yields to remain volatile in June, ensuring a close correlation between bitcoin and stocks.

The two-year Treasury yield is already approaching 5%. The ability to lock in returns of 5% in government bonds, which are seen as safe investments, might persuade macro traders to rotate money out of stocks, cryptocurrencies and other, riskier corners of the financial market.

"We're now at a level of bond yields where rising yields from here are really going to weigh on all asset classes," Peter Oppenheimer at Goldman Sachs said Thursday on Bloomberg Surveillance.

As such, traders will closely watch the personal-consumption expenditures (PCE) price index for guidance on the direction of Federal Reserve interest rates. The data, the Fed's preferred inflation measure, is scheduled for release on Friday at 8:30 EST (12:30 UTC).

The overall PCE Price Index is forecast to have risen 2.7% on an annual basis in April, the same as in March, according to FactSet's consensus estimates. Forecasts see a 0.3% month-over-month increase, following March's 0.32% uptick. The consensus for the core PCE, which excludes food and energy prices, is a 2.8% rise in the annual rate and 0.3% month-on-month.

"The most important main event of the day is PCE. The data the Fed loves. The 2% inflation target they talk about is PCE, not CPI. If the data beats expectations, people will not buy risk assets," Chang said.

A bigger-than-expected jump in the core figure would weaken the case for renewed interest-rate cuts, leading to a further hardening of bond yields. At press time, the Fed funds futures showed investors pricing just 35 basis points of rate cuts this year.