The yield on the 10-year Treasury note hit a two-week high above 4.4% overnight, fueled by persistent inflation and stronger-than-expected manufacturing data. This rise in the “risk-free” rate often entices investors to pull money out of riskier assets like Bitcoin and even non-yielding investments like gold. Interestingly, gold maintained its ground despite the weakness in Bitcoin and tech-heavy Nasdaq.

Investor Interest Wanes in Higher Rate Environment

Semir Gabeljic, director of capital formation at Pythagoras Investments, attributed the Bitcoin pullback to the shifting macroeconomic outlook on interest rates. He explained via email that higher interest rates generally dampen investor appetite for riskier assets like Bitcoin.

Prediction markets like Polymarket and the CME Fed Watch Tool reflect the fading hopes for an immediate rate cut. On Polymarket, bets for a rate cut by May are virtually non-existent, with a 50/50 split on the possibility in June. The majority of bets anticipate a rate cut happening sometime in the fall. Similarly, the CME Fed Watch Tool assigns a 97% chance of rates remaining unchanged after the Fed’s May meeting.

Liquidations Signal Short-Term Pain

Coinglass data reveals over $245 million in long positions liquidated across the cryptocurrency market in the last 24 hours, with Bitcoin positions accounting for $60 million of that total.

Jun-Young Heo, a derivatives trader at Singapore-based Presto, noted that funding rates for perpetual futures contracts across most crypto assets have returned to neutral territory (around 1 basis point). He also observed a 10% decline in global futures open interest overnight, suggesting some leveraged long positions are being closed out.

Heo further suggests that with recent Bitcoin ETF inflows slowing down and both Bitcoin and Ethereum prices falling below their 20-day moving averages, some trend followers might be interpreting yesterday’s downturn as the end of the two-month-long rally.

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