Cryptocurrencies started the week well, with Bitcoin’s price soaring to $102,000 for the first time in over two weeks and the fear and greed index moving to the greed zone. However, these gains were undone on Tuesday when Bitcoin, Shiba Inu, Pepe, and other coins crashed. Here are two potential risks that could further crash these coins.
Soaring US Bond Yields
The first main reason that could lead to more crypto downturn is the bond market’s performance. The chart below shows that the US 30-year, 10-year, and 5-year Treasury yields have surged to their highest levels since October 2023.
Data shows that the 30-year has moved to 4.91% and may hit 5% this week. The 10-year and 5-year have soared to 4.68% and 4.46%. These increases are notable because they are happening at a time when the Federal Reserve is in a rate-cutting cycle.
The bank slashed rates by 1% last year and guided towards two more cuts this year. In theory, yields should fall when the Fed is cutting rates. Therefore, their continued increase is a sign that the market believes that the Fed may not cut rates as guided since inflation is no longer falling. Donald Trump’s policies of tax cuts, mass deportations, and tariffs will exacerbate the situation.
Risky assets rarely do well when bond yields rise since capital tends to flow to money market funds, which have accumulated over $6.8 trillion in assets.
Therefore, the next few days will be important, as the Fed will publish the minutes of its last meeting, and the US will release December’s inflation and jobs data. Strong numbers will solidify the Fed’s resolve to continue its hawkish tone, putting more pressure on coins like Bitcoin, Shiba Inu, and Pepe.
Bitcoin, Shiba Inu, and Pepe Coin’s SEC Risk
The other big risk that these coins face is from the Securities and Exchange Commission. In theory, the incoming Trump administration is expected to be highly positive for the cryptocurrency industry.
Trump has already nominated Paul Atkins to be the next SEC Chair, David Sachs to lead a crypto and AI council, and Howard Lutnick to head commerce. He is also close to Elon Musk, a key crypto supporter whose companies like Tesla and SpaceX own Bitcoin.
The SEC is expected to maintain a light-touch approach to crypto regulation, which may spur animal spirits among investors in the industry.
However, as The Atlantic wrote, deregulating the crypto industry may create a bubble that will ultimately bust, hurting many investors.
The other risk is that Atkins’ policies may hurt the industry if they fall short of expectations. For example, many cryptocurrency investors expect him to kill the Ripple appeal and approve many crypto ETFs. If he fails or delays, there is a chance that most coins will retreat.
On the positive side, history shows that cryptocurrencies do well regardless of who the president is. For example, Bitcoin just surged to a record high even though anti-crypto Gary Gensler was the head of the SEC.
