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Cryptocurrency prices nosedived on Tuesday as concerns about the bond market intensified. Bitcoin, the biggest coin in the world, dropped by more than 3% to a low of $27,500. Similarly, Ethereum tumbled by 4% to 1,658%.
Rising bond yields
Some of the worst-performing altcoins were Pepe, Sui, ThorChain, Arbitrum, and Optimism. Pepe, the highly popular meme coin crashed by 10%, with the 24-hour volume being $80 million. The other altcoins fell by over 7%.
This price action was much different from what happened on Monday when Bitcoin surged to $28,000. Other major tokens that soared on Monday were Solana, Chainlink, and Tron. They jumped as investors cheered the temporary extension of US government funding.
The ongoing crypto meltdown is mostly because of the performance of the bond market. According to Investing.com, the 10-year Treasury yield soared to 4.72%, the highest level since 2007. Similarly, the 30-year yield jumped to 4.85% while the 2-year yield slipped to 5.1%. As a result, the yield curve has inverted to the lowest level in decades.
Popular bond ETFs have also plunged, as I wrote here. The iShares 20+ Year Treasury ETF (TLT) and the Vanguard Long-Term Treasury (VGLT) funds have plummeted to the lowest levels since 2014.
Implications for cryptocurrencies
There are three main reasons why US bonds are plunging. First, the US government borrowing has increased dramatically, pushing the total debt to over $33 trillion. This increase and the regular dysfunction in Washington has pushed Fitch to downgrade the US government.
There are also concerns about the US ability to pay its longer-term debt now that interest payments have jumped to over $800 billion. Sadly, there is no way out now that politicians in Washington are not ready to cut spending.
Second, the Federal Reserve has hinted that it will continue hiking interest rates since inflation is still elevated. Finally, some of the biggest holders of US debt have started selling. China has sold over $300 billion worth of Treasuries since 2021.
The rising bond yields and the inverted yield curve have an impact on altcoins like Pepe, Sui, Arbitrum, and Optimism. For one, they signal that a recession could be coming. Historically, risky assets tend to underperform during a recession.
Further, they lead to strong returns in short-term bonds and push them to their safety. This explains why money market fund yields and the US dollar index have risen in the past few months. Therefore, altcoins could continue falling if this trend continues.
An incredible $993 billion has gone into money market funds since the Fed started raising rates in March 2020.
Inflows to money market funds are well ahead those seen in 2015, 2004, 1999 and 1994 rate hike cycles.
With a strong US Dollar and falling bond prices, money market… pic.twitter.com/ECXQ1LM40f
— The Kobeissi Letter (@KobeissiLetter) October 2, 2023
The post Pepe, Sui, Arbitrum, Optimism, RUNE plunge as the bond rout continued appeared first on Invezz.
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