Bitcoin Price Falls as Bond Yields Rise Following Fed’s Decision to Maintain Interest Rate

The Bitcoin price has continued its downfall after hitting its all-time highs in recent weeks. The leading cryptocurrency fell following the chairman of Federal Reserves, Jerome Powell, that the bank will keep the current interest rate on hold while it monitors bonds. Recently, Treasury yields have been rising consistently.

Nevertheless, the Fed and its Chair seem not to be ready to change their plan towards inflation. The Chair made his stance known during his discussion with participants of the Wall Street Journal Jobs Summit held yesterday. Powell said that the Fed would maintain the interest rate despite the apparent fact that individuals and businesses are now borrowing at higher interest rates.

Stock Market Falls in Reaction to Powell’s Comment

The US stock market reacted negatively to the news as the Dow Jones fell by 1% yesterday. Likewise, Bitcoin fell by 5% in just a day. But Treasury yields keep soaring. The Fed’s stance is coming amid the spring and COVID-19 pandemic that is still keeping the world economies on its toes. However, there is a glimmer of hope as vaccines have been introduced while lockdown has been eased worldwide. The positive development is expected to continue for an extended period. These are causing borrowing costs and even pressure to borrow money and even borrow money to keep rising.

You might have heard about the 10-year Treasury bonds. The term refers to the bonds sold by the fed to investors where the government later borrows back the money to pay a small yield. Typically, a rise in Treasury bond yields indicates an increase in investor confidence mainly because people search for assets that will earn them returns higher than the present 1.55% rate. A decrease in demand leads to an increase in yields. An increase in yield may also signal that inflation, which is the darling of Bitcoin traders, may be on its way. At present, the Fed is unwilling to alter the interest rate. The critical issue is inflation because its presence increases the growth of the economy.

The Federal Reserve Yet to Meet its Employment and Inflation Goals

Powell stressed that the Federal Reserve Bank had not yet met its employment target and its 2% inflation goal. He, however, noted that the Bank wouldn’t upset yields so that it won’t buy any additional treasury notes. He also assured that the Bank would keep monitoring the interest rates. He added that if the situation changed in the future, the bank would utilize the available instruments to achieve its goals.

Till now, Bitcoin has benefited immensely from the Fed’s monetary policies aimed at expanding the economy. Also, crypto investors have been optimistic that such policies will continue to boost the crypto’s expectation of being a hedge against inflation. Since March last year, the Fed has continued to boost the dollar add trillions to its balance sheet. This is one of the reasons Bitcoin keeps soaring higher as it rose from $6,0000 to $54,000 before its correction back to $48K as of the time of writing this report. Such returns are undoubtedly higher than Treasury bonds.

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