On April 3, long-term US government debt yields fell to lowest levels in six months as investors responded to growing concerns over the world trade war and weakening of the US dollar. The 10-year Treasury bond yield fell 4.0% from 4.4% a week ago, indicating strong demand from buyers.
US 10th year Treasury yield (left) vs Bitcoin/USD (right). Source: TradingView / Cointelegraph
At first glance, the high risk of an economic recession may seem negative to Bitcoin (BTC). However, a decrease in return from fixed income investments will encourage allocation to alternative assets, including cryptocurrencies. Over time, traders may reduce their exposure to bonds, especially when inflation rises. As a result, the path to Bitcoin of all time in 2025 remains plausible.
Tariffs create a “supply shock” in the US, affecting inflation and fixed income returns
It can be argued that the recently announced US import duties will have a negative impact on the profitability of businesses, forcing some companies to remove them, resulting in reducing market liquidity. Ultimately, measures that increase risk aversion tend to have a short-term negative impact on Bitcoin, especially given its strong correlation with the S&P 500 index.
Axel Merk, chief investment officer and portfolio manager at Merk Investments, said tariffs will create a “supply shock.” This effect can be amplified when interest rates are falling, paving the way for inflationary pressures.
Source: x/axelmerk
Even if you don’t view Bitcoin as a hedge against inflation, the appeal of fixed income investments is significantly reduced in such a scenario. Additionally, if only 5% of the global $140 trillion bond market is seeking higher revenue elsewhere, it could translate into $7 trillion in potential inflows into stocks, commodities, real estate, gold and Bitcoin.
The weaker US dollars among the highest ever high
Gold rose to a market capitalization of $21 trillion as it reached its all-time high, but it still could be a significant price increase. Higher prices will resume previously unprofitable mining operations, encouraging further investments in exploration, extraction and refining. As production expands, supply growth naturally acts as a limiting factor for gold’s long-term bull run.
Regardless of US interest rate trends, the US dollar has weakened against a basket of foreign currency, as measured by the DXY index. On April 3rd, the index fell to 102, reaching its lowest level in six months. Even in relative terms, a decline in trust in the US dollar could encourage other countries to explore valuable alternatives that include Bitcoin.
US Dollar Index (DXY). Source: TradingView / Cointelegraph
This transition doesn’t happen overnight, but trade wars could lead to a gradual separation from the US dollar, especially among countries that feel pressured by its dominant role. No one expects a return to gold standard and Bitcoin to be a major component of the national reserve, but the move away from the dollar will strengthen Bitcoin’s long-term upside potential and strengthen its status as an alternative asset.
Related: Trump’s “liberation day” tariffs cause disruption in the market, recession concerns
To put things in perspective, Japan, China, Hong Kong and Singapore collectively hold $2.63 trillion in the US Treasury Department. If these regions choose to retaliate, bond yields could reverse the trend, increase the cost of the US government’s new debt issuance, further weakening the dollar. In such a scenario, investors may avoid adding stock exposure and ultimately support rare alternative assets like Bitcoin.
The bottom of the timing Bitcoin market is nearly impossible, but the fact that it retains its support level of $82,000 despite the worsening global economic uncertainty is an encouraged sign of its resilience.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
