Bitcoin Price Jumps as US Bond Yields Slip, But Key Risks Remain

Key Insights

• Bitcoin price rose for three consecutive days amid the US-Iran truce.
• US bond yields have pared back some of their recent gains.
• Bitcoin faces some major risks, including the rising ETF outflows.

Bitcoin price rose for the third consecutive day, moving above the crucial resistance level at $77,000. This rebound came two days after it dropped below the key support level of $75,000 as traders waited for a Donald Trump strike against Iran. It also happened as US bond yields continued falling.

Bitcoin Price Jumps as US Bond Yields Fall

BTC price continued rising on Monday as the US bond market made some steady improvements. Data shows that the ten-year yield dropped for three consecutive days, reaching its lowest level since May 15. It has slipped modestly from the year-to-date high of 4.686%.

US ten-year bond yield has slipped | Source: TradingView

Similarly, the 30-year yield dropped to 5.06% from the year-to-date high of 5.2%. These yields will likely continue falling on Tuesday when the US markets open after the Memorial Day holiday. Falling bond yields benefit Bitcoin and risky assets by preventing or reducing the rotation to safe assets.

The main reason for the ongoing bond market strength is President Donald Trump’s insistence that the US and Iran were nearing a deal. He said that last week as he postponed attacks against the country.

The view accelerated on Saturday when he said that he was close to a deal to reopen the Strait of Hormuz. He added that the deal will be much better than the JCPOA, which was negotiated by the Barack Obama administration.

A deal between the US and Iran would see the two countries reopen the Strait of Hormuz, where 20% of all the world’s oil passes through. This explains why Brent and the West Texas Intermediate (WTI) dropped sharply today.

Lower oil prices mean that US inflation may start falling, reducing the need for the Federal Reserve to start hiking interest rates. Minutes released last week showed that some Fed officials seriously considered hiking rates.

The situation escalated last Friday when Christopher Waller said that rates needed to rise if inflation remained at an elevated level. Waller, who was a Fed Chair contender, has been one of the bank’s top dovish officials.

BTC Price Faces Some Major Risks

Bitcoin price faces some major risks ahead. First, it is still unclear whether Iran and the US will reach an agreement to reopen the Strait of Hormuz. Already, some of Trump’s top allies like Senators Roger Wicker, Ted Cruz, and Lindsey Graham, have blasted any potential deal as a sign of surrender. They argue that it will unlock billions of dollars to Iranians while giving the US nothing. Therefore, there is still a risk that Trump will launch an attack, undoing the ongoing gains.

The other risk is that investors seem to be dumping their BTC holdings. Data shows that spot BTC ETFs have shed substantial assets this month. Their monthly outflows crossed the important milestone of $1 billion last week. This is a big disappointment as they added $1.97 billion in April and $1.32 billion in March.

Bitcoin Has Formed Weak Technicals

Technical analysis points to more downside in the near term. For one, the Average Directional Index (ADX) has dropped to 19.78, its lowest level since April. A falling ADX indicator is a sign that a trend is losing momentum.

At the same time, Bitcoin sits below the 100-day Exponential Moving Average (EMA). This is a sign that bears are flexing their muscles. Most importantly, it remains below the lower trendline of the rising wedge pattern, a common bearish technical indicator.

BTC price chart | Source: TradingView

Therefore, there is a risk that the coin will resume the downward trend, and possibly retest the key support level at $70,000. The bearish outlook will become invalid if the coin jumps above $82,847, the highest point this year.

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