Bitcoin and Ether prices drop as higher bond yields push up the dollar

In the Brief:

  • Bitcoin and Ether dropped due to the dollar index increase, as traders have confidence in the Federal Reserve's tightening cycle
  • Ether dipped to $2,084 and bitcoin went below $30,000
  • Bond yields rose as the Federal Reserve's progress in bringing down inflation to 2% remained insignificant, which resulted in some losses for cryptocurrency on Monday

3 - 4 minute read

The overall cryptocurrency market lost value on Monday, with Bitcoin and Ether both experiencing losses. These losses took place as the dollar index climbed, in line with higher bond yields, indicating trader confidence in the continuation of the Federal Reserve’s tightening cycle.

According to CoinDesk, Bitcoin registered a 1.7% loss on a 24-hour basis and fell below $30,000, while Ether went down by nearly 1.8% to $2,084, the native token of Ethereum’s blockchain. The DeFi dominance index, which calculates the worth of a basket of top decentralized-finance coins relative to the total market, remained stable at around 4.3%, according to TradingView data. Additionally, the U.S. Securities and Exchange Commission (SEC) reopened a proposal from 2022 last Friday to specifically target decentralized finance or DeFi.

The dollar index has risen to 101.80 and climbed by 0.5% on Friday, while the two-year note saw a nearly five basis-point rise to 4.16%. Meanwhile, the ten-year note rose to its highest level in a month at 3.54%, and bond yields began to climb on Friday after Fed Governor Christopher Waller disclosed that the central bank had not made any significant progress in bringing inflation down to its target of 2% and would need further interest rate hikes.

According to Markus Thielen, the head of research and strategy at crypto services provider Matrixport, the “10-year Treasury yield is quietly climbing back up… This needs monitoring in terms of a warning sign.” Thielen also suggested that investors potentially consider converting some profits, given the exuberant signs in the crypto market. Meanwhile, senior market analyst at the FxPro Alex Kuptsikevich indicated that Bitcoin might struggle to establish a footing above USD 30,000 in the short term.

In general, the rise in bond yields tends to decrease the attractiveness of investments in risk assets, such as cryptocurrency, which appears to be the case here as both Bitcoin and Ether saw losses on Monday. With more volatility introduced into the markets over the past year by the Federal Reserve’s adjustments to interest rates (up a total of 475 basis points), there appears to be confusion and concern among investors, as highlighted by Thielen’s advice to potentially realize some profits. Kuptsikevich’s take is that traders must prepare for the $30,000 level to act as significant resistance in the near term.

The Bottom Line

In view of the cryptocurrency market’s recent losses, traders should continue to monitor both bond yields and the impacts of the Federal Reserve’s policy decisions. Investors should pay close attention to major crypto assets’ performance as bond yields rise to gauge their risk levels. Extracting some earnings from overly optimistic investments may be advantageous, as per Thielen’s recommendation. Meanwhile, traders must be prepared for the $30,000 price level to act as a barrier until further market developments.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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