Bitcoin slips below $85,000 as 5% Treasury yield returns to haunt risk assets

Bitcoin fell below $85,000 on Sept. 23 after stronger-than-expected US business activity sent Treasury yields higher and flushed leveraged longs.

The reversal broke the momentum behind a rebound that had accelerated as Bitcoin pushed through a large concentration of short positions earlier this week.

Selling intensified after S&P Global released its September flash purchasing managers’ indexes. Within an hour, $135.8 million of crypto positions were liquidated, according to CoinGlass, with longs accounting for $125.9 million. Bitcoin accounted for $47.4 million of the wipeout, and Ether another $23.9 million.

Over the past 24 hours, losses total $510 million across 122,256 traders, with long traders losing $363.83 million.

The reaction reflected how quickly the rate backdrop turned against a market positioned for further upside. The latest economic data showed US growth accelerating as businesses reported renewed cost pressures, strengthening the case for interest rates to remain elevated.

S&P Global’s composite PMI climbed to 58.4 in September, its highest level in more than five years, while the services index rose to 58.7 and manufacturing reached 57. All three readings came in above expectations.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said historical comparisons suggest the survey is consistent with annualized economic growth of about 5%, with roughly 4% growth signaled for the third quarter overall.

The acceleration came with a less favorable inflation signal. Companies reported the steepest increase in input costs in four years as higher oil prices lifted fuel and transportation expenses, while supply-chain bottlenecks worsened and backlogs increased.

Williamson said the combination of stronger demand and limited capacity was giving companies greater pricing power, raising the risk that cost increases feed into inflation in the coming months.

He added:

“This growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff. Backlogs of work are consequently rising sharply. While this accumulation of uncompleted orders bodes well for the further expansion of output and capacity in the coming months, it also indicates that companies are developing more pricing power, and hence is a worry for the inflation outlook”

Bond markets responded immediately. The 10-year Treasury yield moved back above 5% to around levels last seen in 2007, while the two-year yield climbed to its highest level in about 27 months.

The move also revived a broader concern over how much additional yield investors may demand to absorb growing US government borrowing.

James Lavish, the Co-Managing Partner of Bitcoin Opportunity Fund, argued that Treasury supply is increasingly colliding with investor concerns over what he described as structural dollar debasement. In his view, higher yields can become self-reinforcing as rising interest costs increase the government’s financing needs, requiring still more debt issuance.

Lavish added that any eventual monetary intervention to absorb that supply could deepen those currency concerns, creating what he described as a “self-reinforcing loop.”

That structural argument sits on top of the more immediate message from Wednesday’s PMI report. An economy growing faster than expected gives the Federal Reserve greater room to keep policy restrictive, while rising input costs and higher oil prices complicate the inflation outlook.

For Bitcoin, the timing is particularly difficult because much of the bearish positioning that helped propel its latest advance had already been cleared.

The push through $86,000 earlier this week forced shorts to cover and helped accelerate Bitcoin toward $87,000. Wednesday’s move removed that tailwind just as the bond market turned more hostile to risk assets.

That leaves Bitcoin increasingly dependent on fresh spot demand to reclaim $85,000. With Treasury yields above 5% and US growth still surprising to the upside, buyers now have to support the rebound without the same short-covering boost that helped drive the earlier advance.

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