Bitcoin Faces Bond-Market Test as Treasury Yields Rise Above 5.3%

Bitcoin (BTC) is facing a bond-market test as long-term U.S. Treasury yields rise and digital-asset fund inflows slow, shifting attention beyond the Federal Reserve’s next rate decision.

Digital-asset funds attracted roughly $11.1 billion since mid-July, while inflows slowed during the week of Oct. 8. The 10-year Treasury yield moved above 5.3%, while the 30-year yield reached 5.7% on Oct. 8, with both at their highest levels in more than two decades.

The move came as the implied probability of an October Federal Reserve rate increase fell to 23% from 71% three weeks earlier following weaker employment data. The conflicting signals have focused markets on whether long-term yields reflect expectations for short-term rates, tighter financial conditions or higher compensation for inflation and fiscal risks.

“Of those three, the bond market may ultimately prove the most important,” said James Butterfill, head of research at CoinShares.

Higher yields can make government bonds more attractive than assets that do not generate conventional income, including Bitcoin, while tightening financial conditions across markets. If yields are rising because investors are demanding greater compensation for inflation or fiscal risks, Bitcoin may be viewed by some investors as an alternative to government-issued money rather than simply as another risk asset.

“Bitcoin begins to look less like a conventional risk asset and more like an alternative to government-issued money,” Butterfill said.

The 10-year yield was 5.24% and the 30-year yield was 5.61% on Oct. 1. The figures were derived from market quotations obtained at or near 3:30 p.m. ET.

A Treasury-yield model placed the 10-year yield at 5.30% on Oct. 7. The model attributed 3.80 percentage points to the average expected overnight rate and 1.50 percentage points to the term premium, the additional return investors demand for holding longer-term bonds.

The breakdown distinguishes expected Federal Reserve policy from broader bond-market risk pricing. A higher term premium would suggest that factors beyond expected short-term rates are contributing more to long-term yields.

Long-end Treasury buybacks were doubled in August to at least $4 billion per operation and were scheduled to continue through early November. The operational schedule listed approximately $15.6 billion in reinvestment purchases for the Sept. 15-Oct. 14 period and no reserve-management purchases.

The market debate now centers on whether higher yields are prompting investors to reduce Bitcoin exposure or reflecting concern about fiscal sustainability and demand for a non-sovereign asset. Fund flows may help distinguish between those interpretations, although the available figures establish only that inflows slowed after the recent surge.

For now, weaker employment data have reduced expectations for an immediate Fed hike, while long-term yields remain elevated. That divergence leaves the bond market as a central variable for Bitcoin.