Bitcoin (BTC) is up 0.24% today and trades around at $76,481 in the early Asian session after crashing 3.71% on Tuesday. While Bitcoin price slides lower, the US Treasury market is spiraling into chaos, with the 10-year yield rocketing to 4.5% and the 30-year yield hitting 5%. Some speculate this could be a $2 trillion basis trade unwind while others hint it could be China selling treasuries. Regardless of the reason, markets speculate that this could prompt the Federal Reserve to announce an emergency rate cut, which could prompt a buying spree from crypto investors, catalyzing a bullish reversal for Bitcoin’s price.
Why The Treasury Market Meltdown Matters for Bitcoin
The US President Donald Trump’s trade war with China may have caused the 10Y yields to jump 17.16% from a low of 3.840% to 4.499% in the past 72 hours. In the meantime, BTC is up 2.53% in the last four hours, attempting to undo yesterday’s losses.
ZeroHedge called this “absolutely spectacular meltdown” with “basis trade blowing up, sparking multi-trillion dollar panic.” In a successive tweet, ZeroHedge adds that this is what “the collapse of the $2 trillion basis trade “ looks like.
The basis trade unwind is a leveraged forced-selling spiral—when it happens, Treasury prices drop (yields rise) rapidly, even in a risk-off environment where you’d normally expect bonds to rally. This is why Treasuries are losing their safe-haven appeal amid the trade war turmoil.
With such a steep climb in long-dated yields, Gold bug Peter Schiff says,
“Without an emergency rate cut tomorrow morning and the announcement of a massive QE program, tomorrow could be a 1987-style stock market crash.”
Fed Panic Trade Goes Viral: May Rate Cut Odds Soar 500%
It is yet to be seen if the Fed will announce an emergency meeting to discuss the treasury yields’ unusual spike. A look at the data shows that markets are already pricing in a rate cut. According to the CME Fed Watch Tool, the probability of a rate cut in May has spiked from 10.6% a week ago to 58.9% today.
Bitcoin Price Forecast: Two Scenarios
If the Fed sets up an emergency meeting today and cuts interest rates, it could prompt a massive buying spree from investors, catalyzing a recovery rally for Bitcoin’s price and the broader crypto market, putting an end to the ongoing bear rally. The key levels to watch if BTC price rallies include $81,200, $84,150, and $90,000. A flip of $90K into support level will suggest a shift in paradigm supporting bulls. This development opens the door for a bullish Bitcoin price prediction with a target of $100K and potentially a new ATH.
On the other hand, if the Fed holds, there could be more pain for both the stock and the crypto markets with Bitcoin price potentially dipping into the $70K region.
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