Bitcoin's New High Amidst Bond Market Chaos

Hi Reader,

Thanks for reading The BlockByte Weekly, where we summarise the key updates in crypto over the last week and provide our perspective on what you need to know as an investor.
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Weekly Market Snapshot

• BTC: $108,231 (~A$167,757) (+4.6%)
• Crypto Market Cap: $3.35T (+3.7%)
• Gold: $3,357/oz (+4.6%)
• S&P 500: 5,802 (-2.4%)
• ASX 200: 8,360 (+0.9%)
• 30-Year Treasury Yield: 5.05% (+1.5%)

Executive Summary​
​This week, Bitcoin reached new all-time highs of US $112,000 (~A $174,000). Momentum built as state level adoption continued, with Texas set to become the third state to adopt a Bitcoin reserve bill. In addition, Bitcoin ETFs invested ~$2.75 billion this week, ~4.5 times last week’s $608 million. The surge in price was accompanied by rising open interest and more institutional buying. The bigger question is what's driving the buying?

One of the big macroeconomic stories of the last week was the 20-Year US treasury bond auction, which failed to attract enough buyers, resulting in the Federal Reserve having to step in to buy ~$2B of their own government's debt. This move sparked fear in the equity and bond markets as the S&P500 fell by 1.6% on the day whilst 20-year bond yields rose over 5% for only the second time in history. The US fiscal deficit is expected to go from $1.9T annually (~6.2% of US GDP) to $3.4T (more than 7% of GDP) by 2034. Notably, forecasts are based on interest rates of 3.6%, so if interest rates on the debt continue to rise as we're seeing, the debt situation could cascade.

The market is at a pivotal moment. We think that hedging risk with non-dollar assets like Bitcoin is an increasingly obvious strategy for those seeking to protect wealth in this uncertain environment. However, with the current surge in price, we're expecting some pullback and an unwind of the open interest and leverage that has built up over the last few weeks to further add to positions.

Market Update

What Drove Bitcoin's New All-Time High This Week?

Bitcoin’s climb to US $112,000 was a rally on the back of several factors this week:

Firstly, Texas (the world's 8th largest economy, if it were a country) saw its Bitcoin Strategic Reserve Bill pass both the House and Senate. The bill is now with Governor Greg Abbott for a final sign-off. If approved, the bill will allow Texas to invest an undisclosed portion of its $330B+ budget into digital assets. The requirement is that the asset must have a market cap of at least $500B for a continuous 24-month period. Only bitcoin meets this criteria currently.

Secondly, institutions continued to rotate capital into Bitcoin, with ETFs investing ~$2.75 billion this week, roughly 4.5 times last week’s $608 million. Strategy added another $1.45B to its bitcoin holdings which now exceed $46B (440,000 BTC), and TwentyOne bought $458M worth of bitcoin.

Another major milestone was the announcement from JPMorgan. In spite of their CEO Jamie Dimon being a long-time crypto sceptic, they will now allow clients to buy crypto directly. This further legitimises the asset class and creates greater accessibility for investors to the digital asset sector. Whilst these are bullish indicators for bitcoin, we are advising caution amongst our clients. Open interest, which is the sum of all open contracts in the market, hit a record high this week of over $78B. In times of high open interest, there's a heightened possibility of a market flush, where prices temporarily fall as large holders seek to liquidate leveraged long positions before scooping up more bitcoin at lower prices. I've explained open interest and leverage in prior emails, so if none of this makes sense, feel free to reach out and I'm happy to jump on a call to explain anytime.

US Bond Market Flashes Major Warning

Perhaps the other major driver of Bitcoin's recent price run up was the panic in the US bond market. On May 21st, the US held a $16B, 20-year U.S. Treasury bond auction (relatively small for the largest bond market in the world). This is where the government effectively sells IOUs with a promise to repay with interest in order to raise money which they then spend on things like healthcare, education, military etc.

The reason the auction made headlines was that the Federal Reserve had to step in to buy ~$2B of their own government's debt (this is called debt monetisation and is common in highly inflationary economies like Venezuela). This move sparked fear in the equity and bond markets as the S&P500 fell by 1.6% on the day whilst 20-year bond yields rose over 5% for only the second time in history. Effectively, what the market is saying is that they don't have as much faith in the strength of the dollar due to the debt build up. In order to loan the US government money, investors want to be compensated at a rate above 5% for long duration loans like 20 or 30 years.

Digging a little deeper into the overall debt picture and one of the key reasons bitcoin seems to be performing well amidst equity markets selling off, is that the US fiscal deficit is expected to go from $1.9T annually (~6.2% of US GDP) to $3.4T (more than 7% of GDP) by 2034. These forecasts are based on interest rates of 3.6%, so if interest rates on the debt continue to rise as we're seeing, the debt situation could cascade, creating more debt, and a demand for higher interest in a vicious cycle. Scarce assets like bitcoin, which are now globally recognisable, transportable and liquid enough to handle large volumes, become increasingly attractive as hedges to institutional, and even nation state investors.

If you'd like to understand in a little more detail how the US treasury bond market works, the below video from 2min 50s to about 20min is an excellent explainer from the All-in Pod.

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Other Things We're Keeping an Eye On

The alt coin market was relatively flat for the week, up 1.6%. One of the star performers so far in 2025 has been HYPE, up over 70% year to date. Hyperliquid offers a perpetual futures and spot trading exchange that processes over 200,000 transactions per second with sub-second latency (<0.2 seconds), surpassing competitors like Solana and Ethereum. Whilst lesser known, its low fees and transaction volume capability have made it attractive for high-frequency traders. Whilst speculative, this could be one to keep an eye on.

Until next week,
James

James Brannan
Managing Director
BlockByte
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(+61) 412 393 634
​james@blockbyte.com.au​
​https://blockbyte.com.au/​

BlockByte does not provide financial advice. We provide a personalised brokerage service with tailored support, research and secure custody for investing in digital assets. Reach out to our team to discuss how we can help.

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