Yields on US 10-Year Treasury Notes Drop 10% Amid Trade War Concerns

On April 3, the yields on long-term US government debt experienced a significant decline, reaching their lowest levels in six months. This drop was driven by investors' growing concerns over the escalating global trade war and the weakening of the US dollar. The yield on the 10-year Treasury note briefly touched 4.0%, down from 4.4% a week earlier, indicating a strong demand from buyers.

At first glance, the heightened risk of an economic recession might seem unfavorable for Bitcoin (BTC). However, the lower returns from fixed-income investments are likely to encourage allocations to alternative assets, including cryptocurrencies. Over time, traders are expected to reduce their exposure to bonds, especially if inflation rises. Consequently, the path to a Bitcoin all-time high in 2025 remains plausible.

The recently announced US import tariffs are expected to negatively impact corporate profitability, potentially forcing some companies to deleverage and reducing market liquidity. Any measure that increases risk aversion tends to have a short-term negative effect on Bitcoin, particularly given its strong correlation with the S&P 500 index. Axel Merk, chief investment officer and portfolio manager at Merk Investments, noted that tariffs create a “supply shock,” meaning the reduced availability of goods and services due to rising prices causes an imbalance relative to demand. This effect is amplified if interest rates are declining, potentially paving the way for inflationary pressure.

Even if Bitcoin is not viewed as a hedge against inflation, the appeal of fixed-income investments diminishes significantly in such a scenario. If just 5% of the world’s bond market seeks higher returns elsewhere, it could translate into potential inflows into stocks, commodities, real estate, gold, and Bitcoin.

Gold surged to a $21 trillion market capitalization as it made consecutive all-time highs, and it still has the potential for significant price upside. Higher prices allow previously unprofitable mining operations to resume and encourage further investment in exploration, extraction, and refining. As production expands, the supply growth will naturally act as a limiting factor on gold’s long-term bull run.

Regardless of trends in US interest rates, the US dollar has weakened against a basket of foreign currencies, as measured by the DXY Index. On April 3, the index dropped to 102, its lowest level in six months. A decline in confidence in the US dollar, even in relative terms, could encourage other nations to explore alternative stores of value, including Bitcoin. This transition does not happen overnight, but the trade war could lead to a gradual shift away from the US dollar, particularly among countries that feel pressured by its dominant role. While no one expects a return to the gold standard or Bitcoin to become a major component of national reserves, any movement away from the dollar strengthens Bitcoin’s long-term upside potential and reinforces its position as an alternative asset.

To put things in perspective, if regions choose to retaliate, bond yields could reverse their trend, increasing the cost of new debt issuance for the US government and further weakening the dollar. In such a scenario, investors would likely avoid adding exposure to stocks, ultimately favoring scarce alternative assets like Bitcoin. Timing Bitcoin’s market bottom is nearly impossible, but the fact that the $82,000 support level held despite worsening global economic uncertainty is an encouraging sign of its resilience.