Major cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Solana (SOL), have shifted from a sharp rally to a downward trend. Two significant risks are emerging as contributors to market instability.
According to Bankless Times, these risks stem from the sharp rise in U.S. bond yields and potential policy changes at the Securities and Exchange Commission (SEC).
The first risk is the rapid increase in U.S. bond yields. Yields on 30-year, 10-year, and 5-year Treasury bonds have climbed to 4.91%, 4.68%, and 4.46%, respectively, reaching their highest levels since October 2023.
Despite the Federal Reserve’s recent 1% rate cut and indications of further reductions, these rising yields suggest inflation is cooling more slowly than expected.
The Trump administration’s proposed policies, such as tax cuts, tariffs, and large-scale deportations, could exacerbate inflationary pressures, further complicating the economic outlook.
Rising bond yields typically drive investors toward safer assets like Treasury bonds, negatively impacting riskier investments such as cryptocurrencies. This shift could increase capital outflows from the crypto market as investors seek the higher returns of government bonds.
Historical data supports this trend. For example, when the U.S. raised interest rates in early 2022, major cryptocurrencies, including Bitcoin, entered a prolonged bearish phase.
The second risk relates to potential shifts in SEC policies. The Trump administration has indicated a pro-crypto stance, nominating Paul Atkins as the next SEC chair and David Sacks to lead the cryptocurrency and AI committee. These appointments have heightened market optimism about possible regulatory easing.
However, experts caution that excessive deregulation could create a bubble in the crypto market. Investor sentiment may deteriorate if the ongoing Ripple lawsuit concludes unfavorably or spot ETF approvals are delayed.
Regulatory uncertainty has consistently been a significant factor in crypto market volatility. In 2023, when the SEC delayed its decision on Bitcoin ETF approvals, Bitcoin prices saw a short-term decline.
Bankless Times highlights historical data that shows Bitcoin’s resilience over time, regardless of political leadership or regulatory attitudes.
For instance, Bitcoin reached record highs even during the tenure of former SEC Chair Gary Gensler, known for his cautious approach to cryptocurrencies. This underscores Bitcoin’s ability to maintain its long-term upward trajectory despite short-term setbacks or regulatory challenges.
Experts emphasize that this week’s U.S. inflation and employment data will play a pivotal role in shaping the immediate direction of the cryptocurrency market. These metrics, bond yields, and regulatory developments influence crypto valuations.
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