While yields on US and Japanese government bonds continue to rise, Shang Wu, senior research analyst at cryptocurrency exchange BitMEX, stated that this rise in bond yields indicates a long-term and structural change in the financial system. Wu emphasized that if interest rates remain at current levels or increase further, it could turn investors away from depreciating assets and towards Bitcoin, starting a “Bitcoin super cycle.”
US and Japanese bond markets are at critical levels
According to Wu’s analysis, the US 30-year government bond rate exceeded 5.14 percent on Tuesday, while the 10-year bond rate in Japan rose to 2.8 percent. Wu argued that these interest rates were unsustainable. According to him, states may be forced to choose between devaluing their currencies with high borrowing rates or facing a serious sovereign debt crisis.
“Central banks are cornered. They will either face the sovereign debt crisis or devalue their currencies,” Wu said.
While the total national debt of the USA exceeds 39 trillion dollars, geopolitical tensions and the increase in energy prices are pushing up public expenditures. In particular, the war in Iran increases energy costs, causing the risk of inflation to increase in the country.
Mini dictionary: Yield curve control is a monetary policy practice in which central banks intervene in the market through bond buying and selling transactions to keep bond interest rates within a certain range. This method aims to prevent sharp fluctuations in interest rates.
Interest rate increase is not a solution, it increases the debt burden
Central banks generally increase interest rates in the fight against inflation, and this step makes access to credit difficult and creates a cooling in general demand. However, Wu stated that the $39 trillion public debt in the United States makes it almost impossible for the Fed to carry out an effective fight by increasing interest rates. Because as interest rates rise, the state’s annual debt interest payments also rise rapidly.
| Year | US National Debt ($Trillion) | US 30 Y Bond Yield (%) | Japan 10 Y Bond Yield (%) |
|---|---|---|---|
| April 2024 | 39 | 5.14 | 2.8 |
BitMEX analyst stated that if return rates rise to 7 percent, the United States’ annual interest payments alone could consume all of its federal tax revenues. At this point, central banks are expected to face serious bottlenecks in terms of public finances while trying to suppress inflation.
“With a national debt of $39 trillion, if interest rates are kept at these levels, the state’s annual interest expense will soon consume the entire tax base,” Wu evaluated.
Allegation of increased intervention from central banks
The analysis commented that the US government and central bank will continue to provide liquidity to the market through different means, rather than transparently applying traditional monetary expansion methods. Lyn Alden, who works with Wu in the field of macroeconomics, also pointed out that this process could proceed with different methods such as “yield curve control” and unannounced government bond repurchases.
It was predicted that Bitcoin could stand out for investors looking for a safe haven against inflation in this process, and that long-term pressures on bonds could open the door to a “new price cycle”.
