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Strategist: Rising 10-Year UST Yields Put Pressure on Bitcoin
Cryptocurrency markets have remained virtually unchanged over the past two weeks,
with prices stuck in sustained downtrends, and recent rallies weaker than earlier advances this year, according to Wolfe Research strategists Rob Ginsberg and Reid Harvey.
They say they are now bearish on the sector. "We find it difficult to formulate a short- or medium-term bullish thesis for this asset class," the strategists wrote in their note.
Ginsberg and Harvey noted that neither the broad rally in risk assets nor recent geopolitical tensions and rising inflation have reversed the trajectory of cryptocurrencies. They say it remains unclear "what exactly needs to happen to turn this ship around."
The strategists cited interest rates and the dollar as key bearish factors. They noted that Bitcoin and real rates, when superimposed and inverted, tend to be negatively correlated with each other—as well as with the dollar's performance.
While historically high long-term bond yields have put pressure on risk assets in general, this time the brunt of the pressure has fallen specifically on Bitcoin and cryptocurrencies, the analysts noted. With the 10-year US Treasury yield still moving toward 5%, this headwind is unlikely to subside anytime soon.
Commenting specifically on Bitcoin, the strategists wrote that "the downtrend is alive and well," and despite a month of sideways movement, they expect "the next move to be to the downside." The world's largest cryptocurrency may not even gain enough momentum to reach overbought territory this time, they added, noting that "buyers have abandoned their rally attempts."
Ethereum is expected to follow a similar pattern: Wolfe predicts another decline, this time below $2,000.
The broker continues to track Bitcoin's four-year cycle, noting that the current drawdown has peaked at 53%, while the historical average is around 80%. Based on the average timeframes of past cycles, Harvey believes the bottom will likely be reached around October.
Despite the negative outlook for cryptocurrency prices, strategists stated that they prefer to hold long positions in crypto-related stocks rather than the tokens themselves, even though these stocks have also recently corrected.