The crypto market started the year with optimism as investors anticipated policies under President-elect Donald Trump that could favor digital assets and corporate balance sheets. However, this optimism has been dampened by rising US Treasury yields and a stronger US dollar, leading to speculation that the so-called “Trump trade” might be coming to an end.
Bitcoin’s recent trajectory illustrates the challenges faced by digital assets. The cryptocurrency briefly neared the $100,000 mark but has since retreated, posting a negative return of about 6% over the past month. Rising Treasury yields are being blamed for reducing global liquidity, thereby making traditional investment options like bonds more appealing. Eloísa Cadenas, Chief Innovation Officer at Monetae Exchange, explains that higher yields typically deter investments in riskier assets like Bitcoin and other cryptocurrencies.
Adding to the market’s uncertainty is the Federal Reserve’s cautious approach to interest rate cuts. Although the Fed cut rates for the third time in December 2024, it signaled a more conservative pace of easing moving forward. Meanwhile, US Treasury yields have soared, with the 30-year bond hitting a 14-month peak and the 10-year yield approaching 4.70%. This has put pressure on growth-oriented risk assets, prompting a global market sell-off recently.
On Wall Street, the three major indexes have been trending lower, a move mirrored by Bitcoin, which has historically shown strong correlations with stock indexes, particularly the Nasdaq. Robert Wallden, Head of Trading at Abra, notes that the current 64% correlation between Nasdaq and Bitcoin underscores the current dependence on digital-specific catalysts for a rally.
Despite these challenges, some remain optimistic about the long-term prospects of the “Trump trade.” Michael Strobaek, Global Chief Investment Officer at Lombard Odier, highlights that Trump’s appointments of cryptocurrency advocates to his administration could create a more favorable framework for digital assets. Furthermore, falling interest rates provide additional support.
Market watchers remain hopeful that Bitcoin can weather this storm and continue its upward trajectory. Cadenas argues that while Fed’s rate adjustments might affect Bitcoin by around $5,000, this variance pales in comparison to the $40,000 boost seen during Trump’s presidency. Market corrections, she adds, should not cause alarm, as Bitcoin was recently valued at $70,000 just two months ago.
This analysis does not offer investment advice or recommendations, and readers are encouraged to conduct their own research before making any investment decisions.
