Bitcoin's Liquidity Fractures Along Geographic Lines as Leverage Builds

As we enter October, the price of Bitcoin will not fix the underlying structural problem.

The demand in Europe is outpacing that in the US. Liquidity is concentrated in Bitcoin, which is bad news for Ethereum.

Large accounts are leaning short on the rally. The use of flashing warning lights is also typical over the weekend.

With a gain of over 3% week-to-date and 8.8% month-to-date, Bitcoin was trading under $86,000 on Monday.

The headline number looks good, but the story goes deeper.

The Yield Trap

The US 10-year Treasury yield was the most important macro indicator this past week; it hit 5.34%, its highest level since April 2002, for a short while before falling back to around 5.25%.

The correlation between yields and cryptocurrency has grown into a pattern that is almost instinctual.

Bitcoin briefly surpassed $85,500 on Wednesday due to a PCE inflation report that was less than expected, but the gains soon faded as the 10-year yield stayed firmly over 5.3%.

Although the probability of a rate hike fell to 24.9% from 37.6% the day before, according to the CME FedWatch tool, this change was not enough to sustain a breakout.

Investing in riskier assets necessitates a higher return criterion, as risk-free government debt yields 5.3%. The logic for this is obvious.