Do Bitcoin halvings spark BTC price rallies, or is it US Treasurys?

The relationship between Bitcoin’s price and U.S. Treasury yields has long been considered a strong indicator due to historical data and the underlying rationale.

Bitcoin halvings vs. 10-year Treasury yields

In essence, when investors turn to government-issued bonds for safety, assets like Bitcoin (BTC), which are considered risk-on, tend to perform poorly.

A noteworthy chart shared by TXMC on X (formerly known as Twitter) makes the argument that Bitcoin halvings have coincided with “relative local lows” in the 10-year Treasury yield. Despite the questionable use of the term “relative,” which doesn’t precisely match a three-month low, it’s still worth examining the macroeconomic trends surrounding past halvings.

#BTC halvings have coincidentally arrived at local lows in treasury yields each of the first 3 times. After these moments, risk assets rose broadly while growth expectations also improved.

Thus a myopic Bitcoin narrative about supply shocks was born. But it was always macro. pic.twitter.com/KGQ4TMeKWC

— (@TXMCtrades) September 18, 2023

First and foremost, it’s important to emphasize that the author asserts that the correlation should not be taken as a “direct causal link between yields and BTC price.” Furthermore, TMXC argues that over 92% of Bitcoin’s supply has already been issued, suggesting that daily issuance is unlikely to be the factor “propping up the asset’s price.”

Could the 10-year yield chart be useful vs. Bitcoin?

First, it’s essential to recognize that human perception is naturally inclined to spot correlations and trends, whether real or imaginary.

For instance, during Bitcoin’s first halving, the 10-year yield had been steadily rising for four months, making it challenging to label that date as a pivotal moment for the metric.

U.S. government bonds 10-year yield, 2012. Source: TradingView

One might give some benefit of the doubt since, in fact, leading up to Nov. 28, 2012, yields dipped below 1.60%, a level not seen in the previous three months. Essentially, after the first Bitcoin halving, fixed-income investors chose to reverse the trend by selling off Treasurys, thereby pushing yields higher.

However, the most intriguing aspect emerges around Bitcoin’s third halving in May 2020, in terms of the “relative” bottom of yields. Yields plunged below 0.8% approximately 45 days before the event and remained at that level for more than four months.

U.S. government bonds 10-year yield, 2020. Source: TradingView

It’s challenging to argue that the 10-year yield hit its lowest point near the third halving, especially when Bitcoin’s price only gained 20% in the ensuing four months. By comparison, the second halving in July 2016 was followed by a mere 10% gain over four months.

Consequently, attempting to attribute Bitcoin’s bull run to a specific event with an undefined end date lacks statistical merit.

Therefore, even if one concedes the idea of “relative” local lows on the 10-year yield chart, there’s no compelling evidence that Bitcoin’s halving date directly impacted its price, at least in the subsequent four months.

While these findings don’t align with TMXC’s hypothesis, they raise an interesting question about the macroeconomic factors at play during actual Bitcoin price rallies.

No Bitcoin rally is the same, regardless of the halving

Between Oct. 5, 2020 and Jan. 5, 2021, Bitcoin saw a remarkable 247% increase in its value. This rally occurred five months after the halving, prompting us to question what notable events surrounded that period.

For instance, during that time, the Russell 2000 Small-Capitalization index outperformed S&P 500 companies by a significant margin, with a 14.5% difference in performance.

Russell 2000 small-cap index relative to the S&P 500 (blue, right) vs. Bitcoin/USD (orange, left). Source: TradingView

This data suggests that investors were seeking higher-risk profiles, given that the median market capitalization of Russell 2000 companies stood at $1.25 billion, significantly lower than the S&P 500’s $77.2 billion.

Consequently, whatever drove this movement, it appears to have been associated with a momentum toward riskier assets rather than any trends in Treasury yields four months prior.

In conclusion, charts can be misleading when analyzing extended time periods. Linking Bitcoin’s rally to a solitary event lacks statistical rigor when the upswing generally initiates three or four months after the said event.

This underscores the need for a more nuanced understanding of the cryptocurrency market, one that acknowledges the multifaceted factors influencing Bitcoin’s price dynamics rather than relying solely on simplistic correlations or isolated data points.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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