Cryptocurrencies started the week strong, with the price of Bitcoin climbing to $102,000 for the first time in over two weeks and the Fear and Greed Index moving towards the greed zone. However, these gains were reversed on Tuesday when Bitcoin, Shiba Inu, Pepe and other coins crashed. Here are two potential risks that could cause these pieces to collapse further.
US bond yields soar
The first main reason that could lead to an even bigger crypto slowdown is the performance of the bond market. The chart below shows that yields on 30-, 10-, and 5-year U.S. Treasury bonds have reached their highest levels since October 2023.
Data shows the 30-year rate rose to 4.91% and could reach 5% this week. The 10 years and 5 years soar to 4.68% and 4.46%. These increases are notable because they come at a time when the Federal Reserve is in a rate-cutting cycle.
The bank cut rates by 1% last year and is moving toward two more cuts this year. In theory, yields should fall when The Fed cuts rates. Therefore, their continued increase is a sign that the market believes that the Fed may not cut rates as expected since inflation is no longer falling. Donald Trump’s policies of tax cuts, mass evictions and tariffs will only exacerbate the situation.
Risky assets rarely do well when bond yields rise, as capital tends to flow into money market funds, which have accumulated more than $6.8 trillion in assets.
The next few days will therefore be important, since the Fed will publish the minutes of its last meeting and the United States will publish inflation and employment data for December. Strong numbers will strengthen the Fed’s resolve to maintain its hawkish tone, putting more pressure on coins like Bitcoin, Shiba Inu and Pepe.
The SEC Risk of Bitcoin, Shiba Inu and Pepe Coin
The other big risk these coins face comes from the Securities and Exchange Commission. In theory, the new Trump administration should be very positive for the cryptocurrency sector.
Trump has already named Paul Atkins as the next SEC chairman, David Sachs to lead a crypto and AI council and Howard Lutnick to lead trading. He is also close to Elon Musk, a key crypto proponent whose companies like Tesla and SpaceX own Bitcoin.
The SEC is expected to maintain a light-touch approach to crypto regulation, which could boost animal spirits among investors in the sector.
However, as The Atlantic wrote, deregulation of the crypto industry could create a bubble that eventually bursts, harming many investors.
The other risk is that Atkins’ policies will harm the industry if they don’t meet expectations. For example, many cryptocurrency investors expect it to kill the Training call and approve numerous crypto ETFs. If it fails or delays, it is possible that most of the pieces will move backwards.
On the positive side, history shows that cryptocurrencies do well regardless of who is president. For example, Bitcoin just hit an all-time high even though anti-crypto Gary Gensler was head of the SEC.