Bond Market Stress Has the Market in Its Grip

The entire past weekend, bitcoin's price hovered around $79,700. That's a few thousand dollars below the dividing line between bear and bull we discussed in the previous Markets. That line sits at 83k. The 50-week average was a lot closer, just above 80k.

A weekly close above the 50-week average but below 83k would present an interesting dilemma. What do you do then: jump in, or sit tight?

It was a photo finish, but the weekly close ended up just below the 50-week average. The exact prices differ per exchange, of course, but on Coinbase the weekly close was $80,339, and the 50-week average $80,343.

So no dilemma. No weekly close above the 50-week average. No higher high (HH) above the $83,000 from May 6. We still can't tick a single box on the checklist for a new uptrend.

⏹️ A higher high (HH) above the $83,000 from May 6
⏹️ A higher low (HL) above the $57,700 from July 1
⏹️ A weekly close above the 50-week average at $79,700
⏹️ A shift in that average's direction from falling to rising

For the third time, we're experiencing a week within a narrow price range around $80,000. That week is almost over, and essentially nothing has meaningfully changed compared to last week.

On the daily chart, we've been seeing some negative divergence with momentum indicators like the RSI for a while now. Volume is also declining. Normally, you'd expect the next big move to be downward, possibly preceded by a brief run to the local highs.

Should bitcoin instead take off from here to (well) above 83k, you couldn't interpret that as anything other than very powerful.

Financial markets have been in the grip of US bond yields over the past few weeks. Those are climbing sharply across all maturities. There are several reasons for this, but concern over inflation now seems to be the biggest factor.

The source of that inflation is the rising oil price driven by the flaring conflict in the Middle East. Fuel, electricity, transport, industry, agriculture — expensive oil finds its way into the inflation figures through countless channels.

The context in which this is playing out matters:

• Inflation has been above the 2% target for five years running.
• US national debt has climbed to $40 trillion.
• President Trump promises to give every American $5,000 after successful midterms, a stimulus of $1.3 trillion.

Treasury Secretary Scott Bessent is trying to rein in long-term yields with tough talk, but he's decidedly failing to do so. We discussed this at length yesterday on Satoshi Radio.

Fed Chair Kevin Warsh has often been pressured to cut rates, but now it looks like his first rate decision will be a hike. Fed Funds futures put the odds of a rate hike at 69% and Polymarket at 62%.

We'll know more this coming Wednesday, September 16. The rate decision will be published at 8:00 PM, and at 8:30 PM Warsh will explain it and take questions from the press.

The chart below shows the expected rate for August, October, and December of this year based on the futures market. At the start of the year, two to three cuts were still priced in. That's now shifted to one to two hikes.

Stocks, gold, and bitcoin have taken a few hard hits in response to bond-market-related developments. Still, we have to note that so far the dip keeps getting bought up quickly. The S&P 500 is only 3% below its all-time high. Bitcoin is also holding up just fine.

A commonly heard explanation is that the market is betting the government will eventually be forced to step in. With national debt around 130%, you have little choice, the thinking goes.

That fuels the debasement trade, where investors seek out assets the government can't simply print more of. Like real estate, gold, and bitcoin.

Yesterday, the FD wrote in an article about the classic 60/40 portfolio wobbling: "Investors are looking for alternatives and replacing bonds with gold and bitcoins, or moving from a 60/40 split to a 50/30/20 split."

That could become one of the stories of the coming bull market. And then it doesn't really matter much whether we've already hit the bottom, or whether it's still to come in the months ahead. This is a story that spans years!

For now, $83,000 remains the key level. Below it, you need to account for two very different paths:

1. A drop below $60,000 for the actual bear market bottom.
2. A breakout above $83,000 for the first higher high in a new bull market.

We're curious to see how this plays out!

We'll continue with the following topics for our Alpha Plus members:

1. On-chain behavior of bitcoin investors turning more bullish
2. Placing stink bids in upward markets
3. Bond market shows Bessent who's boss
4. Rates to 5%; the AI machine keeps running

1️⃣ On-chain behavior of bitcoin investors turning more bullish

Contribution by Bert

The spent output profit ratio (SOPR) tells us how profit-taking and loss-taking relate to each other. For every transaction on the blockchain, it's calculated whether the bitcoin was in profit or at a loss. A value below 1 means a loss. A value above 1 means a profit. The SOPR is the weighted average of all those individual ratios.

In a bull market, investors aren't very willing to take a loss. At an all-time high there's no loss to take, but even during corrections investors trust that things will turn out fine. The SOPR finds support around 1, shown in green on the chart.

In a bear market, investors are glad to get out without a loss. They sell before they slip into profit. The SOPR finds resistance around 1, shown in red on the chart.

That's why the SOPR is a decent indication of the regime. Which way is the wind blowing? What do investors expect for the future? Bullish or bearish?

After a good six months in a clearly bearish regime, we're seeing the first early sign that things could now be different. The SOPR's value fits the transition from bear market to bull market. No proof, but a nice hint!

2️⃣ Placing stink bids in upward markets

Contribution by Sam

Stink bids are limit orders that investors place far below the current price in the hope that, in the event of a rapid liquidation crash, these orders get filled.

Before we go any further, it's important to stress that the last part of the title — "upward markets" — is absolutely essential. The idea is that these crashes recover quickly and continue the upward trend. In a downward market, that's less often the case. In other words, you'd be catching falling knives more often.

In downward markets, deep corrections are often the result of panic sellers, whereas in an upward market they're more often a liquidation of traders chasing the market with high leverage. The assets shift from impatient forced sellers to patient buyers. 

These events don't happen all that often, but often enough to be worth highlighting. Let's take January 3, 2024 as an example. Celestia (TIA) was a very popular altcoin at the time, with a strong narrative around airdrops. In just two months, the price surged around 800%. 

On January 3, 2024, bitcoin dropped about 6% in a single 4-hour candle, while TIA fell more than 20% at that moment. A day later, however, the price stood a full 80% higher than the bottom of the wick. 

Often, such an event doesn't happen while the market is moving strongly upward. Traders are rewarded by higher prices for high funding costs, and their positions are in the green. It tends to happen more when prices have been moving sideways for a while or start to correct. Traders pay high costs to keep their positions open longer and aren't rewarded by higher prices. The positions are vulnerable and confidence keeps eroding.

In short, a few key principles:

• Place the orders far below the current price (at least 10%, preferably more).
• Pick the strongest markets. These often give the strongest reaction, but they also tend to carry the heaviest leverage with a greater chance of steep short corrections.
• Place the orders at or near a support zone, an important EMA, or below a clear low.
• Don't use (large) leverage — go for spot instead. A crash like the one on October 10, 2025, could otherwise liquidate your entire account.

3️⃣ Bond market shows Bessent who's boss

Contribution by Thom

Scott Bessent, US Treasury Secretary, boldly declared this week, "I'm the house now!" With that statement, he wanted to add extra weight to his interventions aimed at pushing US bond yields down. For now, though, it's mainly the market showing Bessent who's really pulling the strings.

Yesterday, the US 10-year yield rose to 4.98%. When Bessent made his announcement about doubling the US Treasury's buybacks of government bonds, that yield stood at 4.75%.

The latest rise in bond yields followed the producer price index (PPI), which showed no further disinflation. Meanwhile, the oil price once again broke through the $100-per-barrel mark.

Although we'll still get the consumer price index (CPI) after this update is written, next week's rate decision is becoming increasingly difficult for the US central bank.

With bond yields rising, the market is signaling that it expects an intervention. At the same time, you could argue that the rising yields are doing part of the US central bank's work for it.

In the short term, these developments create a headwind for bitcoin. Unlike dollar assets, bitcoin doesn't pay any interest. At the same time, higher rates put a brake on the growth of global liquidity; fewer and fewer parties can take on new debt at these rates.

In the long term, this development actually strengthens bitcoin's fundamental story. Servicing government debt is becoming harder worldwide due to rising rates, budget deficits will widen, and even more will have to be plugged with additional debt.

We're moving ever closer to the point where the US government has to choose between fighting inflation or saving the economy.

In the past, we've essentially always seen the economy take priority over inflation. That will happen again this time. If it proves necessary, it's probably just a matter of time before governments and central banks intervene seriously.

The US central bank's ambition to shrink its balance sheet is noble. But it's easy to say that when the economy is running at full throttle. As soon as a serious crisis emerges, that good intention will be the first thing thrown overboard.

It may not feel like it right now, but under the hood, a strong narrative is slowly but surely taking shape once again for bitcoin and other assets that hedge against inflation.

4️⃣ Rates to 5%; the AI machine keeps running

Contribution by Thom

The market's focus is logically on rising bond yields, the oil price of over $100 per barrel, inflation figures, and the US central bank's rate decision. As a result of those developments, bitcoin, gold, and stocks had a rough week.

While there will come a point where rising bond yields collide with the AI bull market, that doesn't seem to be the case at the moment. Of course, it would have been better for the investment cycle in artificial intelligence if rates were lower, but for now the quarterly results remain rock solid.

Amid all the commotion surrounding the US central bank, Bessent, bond yields, and the oil price, it got little attention, but Oracle's quarterly results proved once again yesterday that the AI investment cycle is far from over.

Oracle's cloud revenue rose 62% year-over-year, net profit climbed 60%, and total revenue increased 30%. The 2027 forecast was also raised sharply. The stock climbed more than 4% in after-hours trading following these results.

For companies posting these kinds of numbers, a US 10-year yield of 5% is no problem. For now, I see no signals to suggest the AI investment cycle will already come to an end in 2027.

The numbers are too strong for that, the expectations too high, and the stakes too great. Companies have to keep running (investing) at full speed, because otherwise they'll fall behind the rest. The same applies geopolitically in the AI race between China and the United States.

All the interests seem to point in the same direction.

Personally, I expect rates won't drop significantly until the AI investment cycle slows down. Until then, the US government will have to (re)finance an ever-larger share of the national debt at the current, relatively high rates.

Next will come the point where governments and central banks feel forced to prop up their economies. It's therefore hard to imagine a future in which the money supply and inflation don't rise further.

As for assets like gold and bitcoin, it therefore seems mainly to be a matter of patience. All the short-term frenzy can be distracting, while the long-term picture stays the same. For now, the situation heading into the 2028 halving only seems to be getting more interesting for bitcoin.

Finally

You can read back all previous editions of Alpha Markets in the archive. Questions, comments, and suggestions are more than welcome in the community.

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Until then!