Bitcoin Faces Continued Headwinds as 10-Year Treasury Yield Nears 5%, Wolfe Research Warns

Strategists at Wolfe Research have turned bearish on the cryptocurrency sector, arguing that a persistent downtrend is unlikely to reverse amid significant macroeconomic headwinds. In a recent note, strategists Rob Ginsberg and Read Harvey stated they "struggle to come up with a near – mid term bull thesis on the group," citing stagnant price action over the past two weeks.

Rising Rates and Dollar Strength

The primary drivers behind the bearish case are rising interest rates and the strength of the U.S. dollar, according to the note. The strategists highlighted the negative correlation between Bitcoin and real rates, a relationship that also holds true with the dollar. They observed that while elevated long-bond yields typically weigh on all risk assets, the pressure has recently fallen disproportionately on the crypto market.

With the 10-year Treasury yield on a trajectory to test 5%, Ginsberg and Harvey believe this headwind will not abate soon. They noted that neither a broader rally in risk assets nor recent geopolitical turmoil has been sufficient to alter crypto's downward momentum.

Bitcoin and Ethereum Price Outlook

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For Bitcoin specifically, Wolfe Research believes "the downtrend remains alive and well" and expects "the next move will be to the downside" after a month of sideways trading. The strategists added that recent rally attempts have been weak, suggesting that "buyers have given up."

Ethereum is expected to follow a similar path, with the firm forecasting another move lower that would take its price below $2,000. Despite the negative outlook on token prices, the strategists said they prefer holding long positions in crypto-related equities rather than the digital assets themselves.

Historical Cycle Context

Analyzing Bitcoin’s historical four-year cycle, the strategists pointed out that the current drawdown has reached a maximum of 53%. This is notably less severe than the historical average drawdown, which they noted is closer to 80%. Based on the average timeframe of past cycles, the note suggests a potential market bottom could arrive around October.