Growing $1.8 Trillion ‘Panic’ Fears Could Be About To Blow Up The Bitcoin Price

Bitcoin’s price moves over the last month are among its smallest ever, according to Fundstrat’s head of digital asset strategy Sean Farrell, who predicted that a period of extreme volatility will likely follow over the next few months.

“The typical magnitude of historical moves is notable. Looking across prior observations, the median absolute move over the subsequent 60 days has been roughly 30%,” Farrell wrote in a note to clients seen by CNBC, pointing to a sudden surge in bond yields as a potential trigger that either sends the bitcoin price sharply higher or lower.

Bond yields around the world have spiked this week, with traders pointing to soaring deficits, the spiraling cost of the artificial intelligence buildout, the stubbornly high oil price and uncertainty over monetary policy under the inscrutable Federal Reserve chair Kevin Warsh, appointed by U.S. president Donald Trump earlier this year.

Yields on U.S. 30-year Treasuries have reached their highest level since 2002, while the yield on 20-year Treasury notes has hit a post-2006 high, and the benchmark 10-year Treasury yield notched its highest since 2007.

“We aren’t pushing the panic button, however, we are closely monitoring whether the bond vigilantes might do so," Yardeni Research strategists led by Ed Yardeni wrote in a note seen by Bloomberg, adding that, "now that the yield is approaching the top of this range, we are monitoring the activities of the bond vigilantes more closely.”

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The spike in bond yields means that bitcoin and crypto traders are now more closely watching Treasuries than the Federal Reserve’s next moves.

“The central question for markets is no longer simply whether the Federal Reserve raises or cuts rates,” analysts with the Bitunix crypto trading platform said in an emailed note.

"Instead, investors are increasingly focused on whether; long-term Treasury yields continue rising, U.S.-Iran tensions develop into a sustained energy shock, inflation risks return and global risk premiums expand further. If the 30-year Treasury yield remains elevated while energy prices rise due to Strait of Hormuz disruptions, equities, cryptocurrencies, and other high-valuation assets could face increasing pressure."

Traders are increasingly braced for the bitcoin price to take another big step lower in coming months.

“I wouldn’t be surprised to see bitcoin suffer one more brutal leg lower as we move toward the U.S. midterm elections over the coming months. A move into the mid-$50,000s wouldn’t shock me at all,” Robin Singh, the chief executive of crypto tax software company Koinly, said in emailed comments.

"In fact, if history is anything to go by, the market may need one final flush, the kind of sell-off that convinces the last remaining bulls to give up, before we can confidently say this cycle has finally bottomed."