Bitcoin survives a 5.2% Treasury shock as traders slash $1.7 billion in leverage

Bitcoin is holding near $84,000 even as a historic US bond selloff pushes Treasury yields to decades-high levels.

The benchmark 10-year Treasury yield climbed to 5.22%, extending a move that has taken borrowing costs to their highest level since 2007. The 30-year yield reached a fresh 22-year high of 5.5185% before trading around 5.511%, up nearly five basis points on the session.

The surge is raising the hurdle for Bitcoin and other risk assets by offering investors yields above 5% on US government debt while simultaneously lifting financing costs throughout the financial system.

Yet crypto has absorbed the latest leg of the bond rout relatively calmly so far. Bitcoin remained inside a roughly $83,000 to $85,000 range after retreating from this week's high near $87,000.

Camran Khosravi, an analyst at Bitwise, said Bitcoin has gained about 22% since Aug. 19 even as the 10-year real yield climbed 50 basis points. Real yields have risen steadily, while Bitcoin posted most of its gains early in the period and then held much of them.

Bitcoin gained about 22% from Aug. 19 to Sept. 24 even as the 10-year real Treasury yield rose roughly 50 basis points. Source: Bitwise

That leaves traders confronting whether Bitcoin can continue resisting one of the sharpest increases in risk-free yields in decades.

5% Treasury yields raise Bitcoin’s opportunity cost

The pressure has been building for months, with Jefferies noting that the 10-year yield is on track for a seventh consecutive monthly increase. That would tie the longest such streak in data going back to 1970.

Demand at this week's Treasury auctions has also shown signs of strain.

James Lavish, co-managing partner of Bitcoin Opportunity Fund, said a $44 billion sale of seven-year notes Thursday cleared at 5.085%, up sharply from 4.512% in August and the highest auction yield since April 1993. The auction tailed the prevailing market yield by 0.7 basis points, while its bid-to-cover ratio slipped to 2.42 from 2.50 previously.

The Treasury discontinued seven-year notes in 1993 before reintroducing the maturity in 2009, making the latest auction yield the highest in roughly 33 years.

Mohamed El-Erian, chief economic adviser at Allianz, said the selloff reflects forces visible for some time, including heavy government and corporate borrowing, strong economic activity, and reduced willingness or capacity among some traditional Treasury buyers.

He argued that investors may also remain anchored to the unusually low yields that followed the 2008 financial crisis, leaving markets less prepared for borrowing costs that stay structurally higher.

The economic data are adding to those longer-term pressures.

The Federal Reserve raised its target range by 25 basis points last week, while strong business activity, resilient employment and elevated energy costs are keeping expectations of further tightening alive.

S&P Global's preliminary September composite purchasing managers' index jumped to 58.4 from 56.0, its strongest reading since July 2021. Companies increased payrolls at the fastest pace in more than four years while input costs climbed to near a four-year high.

Those readings have reinforced concern that an economy running hotter than expected could keep inflation pressure elevated and force policymakers to maintain restrictive conditions for longer.

With yields now above 5%, that repricing is also changing the investment case for bonds themselves.

Jurrien Timmer, director of global macro at Fidelity Investments, said a 5% 10-year yield provides bond investors with a substantial cushion. By his calculation, a 100-basis-point decline in yields could generate an 11.9% return, while a rise to 6% would produce a loss of only about 1.9%.

That asymmetry raises Bitcoin's opportunity cost because the asset pays no coupon or dividend while government debt now offers nominal yields above 5%.

Timmer nevertheless said Bitcoin remained among the leading assets in his current multi-asset framework, alongside commodities, while long-duration bonds were lagging.

Bitcoin sheds leverage without a comparable price collapse

Bitcoin's adjustment to the macro shock has so far been more pronounced in derivatives positioning than in its spot price.

CryptoQuant data show combined Bitcoin open interest across Binance, Gate.io, HTX and Bybit falling to about $10.3 billion on Sept. 25 from $12 billion on Sept. 22.

The $1.7 billion decline represents a 14.3% contraction in leveraged exposure, compared with only about a 2.3% decline in Bitcoin from roughly $86,000 to $84,000 over the same period.

The reduction was broad-based, led by a roughly $710 million decline on Gate.io and a $680 million drop on Binance, while HTX and Bybit also recorded lower open interest.

Open-interest data cannot establish whether longs or shorts accounted for most of the reduction because contracts disappear when either side closes a position. The scale of the contraction relative to Bitcoin's price decline nevertheless shows that traders have substantially reduced leverage without producing a proportional break in spot.

That deleveraging can reduce the fuel available for cascading liquidations, although large pockets of leveraged positioning remain around the current market.

CoinGlass' 24-hour liquidation heatmap shows concentrations around $85,300 to $85,700 above Bitcoin, with additional liquidity near $83,000 and a larger cluster around $80,000 below.

Binance BTCUSDT liquidation levels cluster near $85,300-$85,700 above spot, with downside pockets around $83,000 and $80,000. Source: CoinGlass

BlockScholes said the surge in long-term Treasury yields had yet to produce a comparable expansion in crypto volatility, with Bitcoin remaining inside its recent range while 30-day implied volatility stayed near the lower end of its recent range.

That leaves the Treasury market as an increasingly important test of whether Bitcoin's recent resilience can persist.

A further rise in the 10-year above 5.2%, or in the 30-year beyond 5.52%, would test whether the bond-market shock can finally break through Bitcoin's recent resistance.

Falling yields would ease that pressure after the cryptocurrency absorbed a double-digit contraction in selected-exchange leverage while largely maintaining its spot range.

The next major test comes from the Fed's preferred PCE inflation gauge on Sept. 30, followed by the September employment report on Oct. 2. Strong readings could give bond traders further reason to push long-term yields higher and subject Bitcoin's relative resilience to a more sustained macro test.

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