Bitcoin and other cryptocurrencies are experiencing a rise in value on Thursday, as they follow the upward trend of stocks. This positive sentiment towards risk-sensitive assets is fueled by Nvidia’s impressive earnings and the positive outlook for interest rates.
In the past 24 hours, the price of Bitcoin has increased by 2%, reaching $26,500. The largest digital asset has comfortably stayed above its recent low point of $25,500, which was reached in a selloff last week, breaking a period of historically low volatility in the crypto market.
Bitcoin has shown a correlation with the technology stock-heavy Nasdaq 100 stock index. Therefore, as the Nasdaq 100, along with the Dow Jones Industrial Average and S&P 500, was expected to experience a surge on Thursday, cryptocurrencies are likely to benefit from this upward momentum. One of the driving factors behind this positive outlook is the impressive performance of chip maker Nvidia (ticker: NVDA), whose “beat and raise” results have continued to boost equities, especially in the tech sector, due to the growing investor interest in artificial intelligence.
Sophie Lund-Yates, an analyst at broker Hargreaves Lansdown, states, “Nvidia smashing the forecast ceiling has also lifted the mood elsewhere.”
However, Nvidia is not the only contributing factor to this positive sentiment. Risk appetite is increasing as bond yields decline from multi-decade highs, which is an important macro trend that has a significant impact on cryptocurrencies.
Treasury Yields and their Impact on Cryptocurrencies
In recent weeks, there has been a surge in Treasury yields, which has had a significant impact on Bitcoin and other cryptocurrencies. Market expectations suggest that the Federal Reserve’s commitment to fighting inflation and supporting a strong economy will result in interest rates remaining at historically high levels for longer than initially anticipated. This development, coupled with higher rates and yields, has put immense pressure on the crypto market and tech stocks.
One of the main reasons behind the negative impact on Bitcoin is that investors now have the opportunity to earn around 5% on risk-free Treasuries. This level of return makes riskier investments like Bitcoin seem less appealing. Consequently, this shift in investor sentiment was a driving force behind the selloff of Bitcoin last year.
Interestingly, recent data shows that yields have started to retreat across the curve. For example, the benchmark 10-year U.S. Treasury yield fell to 4.18% on Thursday, having previously reached its highest level since 2007 at 4.35% earlier in the week. The decline in yields has been attributed to growing concerns about a potential “hard landing” scenario. In other words, there is mounting fear that the Federal Reserve won’t be able to bring inflation under control without causing an economic slowdown. These concerns have led to speculation that the Fed will adopt a more accommodative approach, which has further contributed to the downward trend in yields.
Henry Allen, an analyst at Deutsche Bank, commented on the recent developments: “Concerns about a hard landing gathered pace over the last 24 hours, which triggered a major rally as speculation mounted that central banks might press pause on their rate hikes.”
While Bitcoin remains a key focus in the crypto market, Ether, the second-largest token, experienced a 2% increase, reaching $1,675. Other smaller cryptocurrencies or altcoins also saw gains, with Cardano climbing 3% and Polygon ticking 1% higher. However, memecoins like Dogecoin and Shiba Inu had more subdued gains, each increasing by less than 1%.
It is important to closely monitor the relationship between Treasury yields and the crypto market as it can provide valuable insights into investor sentiment and potential trends in the future.