Bitcoin's potential breakout may depend on demand stemming from concerns about U.S. public finances, according to a market analysis from Coinshares published Thursday. However, fund withdrawals and a price retreat have complicated that outlook.
James Butterfill, head of research at Coinshares, outlined the theory in an October 8 market update, arguing that fiscal sustainability concerns and elevated borrowing costs could drive allocations to decentralized digital assets that operate without government control.
Treasury Buybacks and Elevated Borrowing Costs
Long-term U.S. borrowing costs remained elevated despite expanded Treasury repurchases. The 10-year Treasury yield stood at 5.22% on October 8, down from 5.31% on October 5, while the 30-year rate eased to 5.60% from 5.67%.
Expanded buyback operations, effective September 9 through November 4, increased maximum purchases to at least $4 billion per operation in the 10-to-20-year and 20-to-30-year maturity sectors. In September, long-term yields reached two-decade highs, with the 10-year rate climbing more than 50 basis points.
Fund Flows Show Weakness
Recent cryptocurrency fund flows have challenged the bullish thesis. Bitcoin spot exchange-traded funds saw $241.08 million in weekly inflows through October 2, roughly 90% below the prior week's $2.39 billion. On October 7, the funds experienced $487.07 million in net withdrawals as Bitcoin fell below $81,000.
Coinshares reported that crypto fund inflows totaled $11.1 billion since mid-July, but momentum has since cooled. The firm stated: "In our view, the absence of flow momentum reflects uncertainty rather than deteriorating fundamentals."
Mixed Economic Signals
Broader economic data presents conflicting signals for policy decisions. Weaker September employment reduced the implied probability of an October rate hike to 23%, down from 71% three weeks earlier. Consumer spending remained resilient, and business activity surveys showed expansion, though elevated energy prices and persistent inflation pressures continued to complicate the outlook.
