Bid-side support for risky assets is being retested. After a single red weekly candle, the crypto market has fallen back to late December levels, wiping out all of January’s gains and testing the market’s strength.
From a technical point of view, this collapse increases the risk of a deeper move down. As geopolitical tensions continue to weigh on risk appetite, another October-style crash is brewing for Bitcoin [BTC] remains a real possibility.
If this cycle repeats, the 4.13% pullback we’ve seen so far this week could be just the beginning. Over the next six to seven weeks, “sustained” downward pressure could push Bitcoin toward an early March target of around $60,000.
Source: TradingView (BTC/USDT)
The key question is of course: what is the chance of a deeper collapse?
Investors are looking at alternatives as government bond yields shrink
Beneath the surface, an important catalyst for Bitcoin is forming.
A Danish pension fund announced that it will cancel all its US government bonds by the end of the month, marking the first such move by a European fund. The fund specifically cited “credit risk” under President Trump as the reason.
Supporting this argument, the US dollar (DXY) has fallen 0.8% this week, returning to early January levels as fears of a looming US-EU trade war take center stage. If this trend continues, it could act as a backstop for Bitcoin.
Source: Market research
For context, a selloff in government bonds shows where investors are leaning.
While inflationary pressures are increasing persistent geopolitical tensionsReal yields on government bonds are declining, forcing investors to sell and look for assets that can keep up with rising prices. That brings us to Bitcoin.
So far, money hasn’t flowed into risky assets, while investors have piled into metals, which are hitting record highs. However, one key indicator suggests that this trend could change soon, giving Bitcoin the chance to avoid a crash.
Market flows suggest Bitcoin could avoid a crash
Looking at the market, rates are starting to backfire.
From a macro perspective, these trade wars are a double-edged sword for the US. On the one hand, Trump’s steps, such as the intervention in Venezuela and the Greenland plan, could… large capital flows to the markets, which is bullish.
However, the short-term impact is clear. Yields on 10-year US Treasury bonds rose to 4.3%, the highest level since early September. At first glance, it seems that higher returns would limit risk flows, including Bitcoin.
Source: TradingEconomics
That said, this 10-year yield is actually a key indicator in the current cycle.
As funds sell U.S. Treasury bonds, yields rise, making issuing new bonds more attractive. For Trump, however, high interest rates on the enormous debt burden are the last thing he wants, especially during a midterm election year.
That’s why Analysts call the 10-year interest rate the ultimate indicator.
Historically, when rates move into Trump’s “warning zone,” he typically moves to “pause” rates so bond markets can cool. If that pattern holds, an October-style Bitcoin breakdown to $60,000 still seems premature.
Final thoughts
- Bitcoin’s downside risk remains, but a deeper crash has not been confirmed. Still, technical weakness and geopolitics are putting pressure on risky investments.
- Rising government bond yields could force a policy change that supports Bitcoin. With rates entering Trump’s “warning zone,” a rate pause becomes likely, stabilizing risky assets.