From Interest Rates to Currency Prices: How Do U.S. Bonds Affect the Lifeblood of Bitcoin?

In the first half of 2025, the U.S. Treasury market experienced violent volatility. Credit rating downgrade, auction cold, fiscal deficit at a record high...... These events have not only reshaped the global asset allocation landscape, but also allowed the The relationship between "U.S. bonds and Bitcoin" has become a new focus in the crypto market. Bitcoin, once a "speculative asset", is now increasingly seen as "digital gold". However, whether this attribute is true depends on whether it can show stability and hedging functions when global liquidity is tight. The impact of U.S. Treasury bonds, as an anchor of liquidity, and interest rate policies on bitcoin is becoming more significant than ever.

In this issue of CC See the World, readers will review the recent important events of U.S. bonds and their impacts, and discuss with investors the possibility of future price movements of U.S. bonds and Bitcoin.

What is U.S. Treasuries?

U.S. Treasury bonds are debt instruments issued by the federal government to cover fiscal deficits and are "the safest assets in the world". called. Since the U.S. dollar is the world's reserve currency, U.S. bonds naturally have a wide range of international buyers, and yields are often an important reference for global asset pricing. Changes in Treasury yields often reflect market expectations for macro factors such as inflation, interest rate policy, and government credit. As the basis for the risk-free rate, changes in U.S. Treasuries can affect the cost of capital, asset pricing, and even global capital flows through multiple channels.

What is a "healthy U.S. debt"?

In terms of yields: The 10-year Treasury yield is often seen as the anchor of the global risk-free rate, and a reasonable yield level should reflect the balance between economic growth and inflation. In general,2.5% to 3.5% is seen as a "healthy" range: a level that would be sufficient to compensate for future inflation without driving up financing costs and dampening investment and consumption. When yields are too low (e.g., <2%), it often means that the market expects an economic downturn or that there is systemic risk; When yields remain above 4.5%, it usually indicates high inflationary pressures or questionable fiscal creditworthiness, which may trigger shocks in global capital markets. Therefore, maintaining a neutral and upper-neutral interest rate level will help stabilize global investors' confidence in the U.S. economy.

From the perspective of the yield curve: The shape of the yield curve (i.e., the relationship between short-term and long-term interest rates) is more revealing of the market's expectations for future economic cycles. Under normal circumstances, long-term interest rates are higher than short-term interest rates, reflecting a moderate upward trend in future economic growth and inflation"Health Curve"; And when short-term interest rates are higher than long-term interest rates, the curve "inverts" is often seen as a precursor to a recession. Over the past few decades, every curve inversion has been followed by a slowdown or recession. If the 10-year interest rate is currently in a healthy range, but the curve is still inverted, it indicates that the market is worried about short-term policy tightening and lacks confidence in long-term growth. Therefore, the U.S. debt is evaluated "Whether it is healthy or not" should not only depend on the level of interest rates, but also pay attention to whether its structural logic is reasonable.

What are the core changes to U.S. Treasuries in 2025?

1. Debt Ceiling and Fiscal Deficit: In early 2025, the U.S. government reset the debt ceiling to $36.1 trillion and raised it again in May with the passage of the "Big Beautiful Act." While the risk of default was averted, the fiscal deficit widened further, raising widespread questions about debt sustainability among investors.

2. Credit Rating Downgrade: Moody's downgraded the U.S. sovereign rating to "Aa1" for the first time on May 16 This is the first time that the three major rating agencies have collectively downgraded the U.S. rating, marking a shift in the market's perception of the safety of U.S. bonds.

3. Auction Weakness and Rising Yields: The results of the US Treasury auction in May were "cold" several times, and the market demanded higher interest rates before taking over. This directly pushes up the cost of government financing and squeezes the attractiveness of other assets.

4. Overseas capital reductions: China's holdings of U.S. debt fell to a multi-year low of $765.4 billion at the end of March 2025. Japan and the United Kingdom are also reducing their holdings. This could weaken demand for U.S. Treasuries and make the market more reliant on domestic funds.

5. Inflation and Monetary Policy Game: Although the US GDP recorded -0.3% in the first quarter, and the economic downturn is expected to strengthen, high inflation has not been fundamentally resolved. Whether the Fed will cut interest rates has become the biggest suspense in the market in the next two months.

The impact of U.S. Treasuries on global liquidity and risk assets

U.S. Treasury bonds are the benchmark for the global risk-free interest rate, and changes in their yields directly affect the global cost of funds. Typically, as the chart below shows, when the supply of U.S. bonds increases and yields rise, global capital tends to flow to low-risk assets such as U.S. bonds, leading to tighter liquidity in other markets. Reduced liquidity has put pressure on high-risk assets (e.g., cryptocurrencies, technology stocks, start-ups, etc.) and weakened their performance. Conversely, if U.S. Treasury rates fall or the market expects the Fed to ease policy, it can release global liquidity and promote the recovery of the venture capital market. Therefore, U.S. bonds, which determine the trend of global liquidity, are also becoming an important indicator of the risk asset market.

impact of U.S. bonds on the price of bitcoin

is highly linked between global liquidity and the price of bitcoin, and the core lies in the market's dynamic judgment of "cost of capital" and "risk appetite":

• At present, if the economic data shows strong employment and high inflation, the market will expect the Fed to maintain high interest rates to suppress inflation, resulting in higher Treasury yields and higher funding costs, and ultimately an unfavorable situation of tightening liquidity, which is bearish for Bitcoin.
• When the interest rate level itself is already high, the market's risk appetite declines, and capital flows back into the bond market, further compressing the activity of the crypto market, which is bearish for Bitcoin. However, Bitcoin has sometimes strengthened in the short term when risk events are frequent or when sovereign credit doubts are rising, as its safe-haven positioning as "digital gold" is supported.
• Conversely, if the market bets on an early rate cut, it means that future liquidity will be released, Treasury yields will be lower, financing costs will be reduced, and risk assets as a whole will benefit, and Bitcoin will often rise with it.

However, it should be noted that the uncertainty of the Fed's policy statement often causes market sentiment to fluctuate wildly, making it possible for Bitcoin to react more than expected in the short term. Therefore, the logic of the Bitcoin price is not simply a one-way correlation with the interest rate, but is nested in"Changes in macro expectations→ liquidity judgments→ capital behavior" are in the complex chain.