Bitcoin Resets $10K Price Target as U.S. Bonds Lose Spotlight

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  • Bitcoin rallied Friday, a day after undergoing a significant sell-off that crashed its price by circa 6 percent.
  • The cryptocurrency’s upside correction came alongside similar recovery moves in the U.S. stocks.
  • The risk-on sentiment led the benchmark bond yields higher to 0.7 percent after four days of decline.
  • A reversal in yields could send bitcoin, as well as the S&P 500, higher in the coming session.

Bitcoin price moved higher on Friday on a so-called “buy-the-dip” sentiment across the risk-on markets.

The benchmark cryptocurrency was trading 1.85 percent higher at $9,439 as of 1217 GMT. Its recovery followed a sharp sell-off a day before that sents its spot price to as low as $9,050 a token on Coinbase exchange.

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Meanwhile, the S&P 500 also inched higher on Friday after spending the previous day in the red. Futures linked to the U.S. benchmark rose 1.9 percent, hinting a positive outlook after the New York opening bell Friday.

The erratic positive correlation between Bitcoin and the S&P 500 pointed towards a recovering risk-on sentiment in the market. Traders earlier sold off their bullish stock positions to extract short-term profits – and partially because of the Federal Reserve’s warning of a slow economic recovery.

Bitcoin, which serves as a scapegoat for traders who lose in the stock market, conveniently tailed the S&P 500. So it seems, traders sold this year’s incredibly profitable cryptocurrency to offset their intraday losses in the U.S. equity market.

Bond Yields Rise

The improving risk-on sentiment took away the spotlight from the U.S. Treasury bonds. The yield on the benchmark 10-year bond rose to 0.7 percent after posting four-days of consecutive declines. Meanwhile, the yield on the 30-year Treasury bond also rose higher to 1.457 percent.

Yields move inversely to bond prices.

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Risk assets and bond yields have moved – almost – hand-in-hand since the global market rout of March 2020.  Investors seeking a long-term safer alternative to wild swings of the stock market typically pick bonds. But with the Fed’s decision to hold benchmark rates near zero, bonds have lost their appeal.

But that is not the same for investors who are holding bonds from the time when rates were higher. As yields move opposite to bond prices, lower rates give these investors a profitable opportunity to sell their holdings at a higher valuation.

A fall in bond rates on Friday indicates that not many traders are buying bonds. That puts the market’s focus on risky assets, benefitting both Bitcoin and the U.S. equities.

Bitcoin to $10K?

The reversal in bond yields hints at a continuation, which may allow bitcoin to retest its spot resistance level of $10,000.

As Brian O’Reilly, head of the market strategy for Mediolanum International Funds pointed out, there is adequate money sitting on the sidelines to enter the market. Investors are looking for short-term profits than long-term sustainability.

It is the very same reason why, despite poor fundamentals, the U.S. equity market has rallied since the end of March. Bitcoin has benefitted from the same set of catalysts.

The gains may continue to arrive as long as bond rates sit lower.

Charts from Tradingview

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