With yields on US and Japanese government bonds continuing to rise, Shang Wu, senior research analyst at the cryptocurrency exchange BitMEX, has signaled that this surge points to a significant and lasting change in the global financial system. Wu emphasized that if interest rates remain high or move even higher, investors may start pulling away from depreciating assets and seek refuge in Bitcoin, potentially triggering what he referred to as a “Bitcoin supercycle.”
US and Japanese bond markets at critical levels
According to Wu’s analysis, the yield on the US 30-year government bond surpassed 5.14% on Tuesday, while the yield on Japan’s 10-year bond climbed to 2.8%. Wu argues that these levels are unsustainable and that governments may soon face a stark choice: either allow their currencies to weaken or confront a severe sovereign debt crisis.
Wu warned that central banks are “cornered,” facing a dilemma where they must either face a sovereign debt crisis or let their currencies lose value.
With total US national debt now exceeding $39 trillion, rising geopolitical tensions and escalating energy prices have pushed public spending even higher. The cost of energy, exacerbated by conflicts such as the ongoing war in Iran, has increased inflationary risks in the US.
Mini glossary: Yield curve control is a monetary policy where central banks intervene in the bond market, buying and selling bonds to keep yields within a targeted range, aiming to minimize sharp fluctuations in interest rates.
Rising rates worsen debt burden, not inflation
Traditionally, central banks have responded to inflation by raising interest rates, a move that cools demand by making credit more expensive. However, Wu pointed out that with the US sitting on $39 trillion of public debt, the Federal Reserve has very limited room to fight inflation through higher rates, since every rate hike dramatically increases the government’s annual interest payments.
| Year | US National Debt (Trillion $) | US 30-Y Bond Yield (%) | Japan 10-Y Bond Yield (%) |
|---|---|---|---|
| April 2024 | 39 | 5.14 | 2.8 |
The BitMEX analyst added that if yield rates were to rise to 7%, US interest payments alone could absorb the entirety of federal tax revenues. This scenario would put central banks in a position where fighting inflation could lead to a fiscal crisis.
Wu explained that with a national debt of $39 trillion, keeping rates at current levels could see annual interest costs quickly eat up the entire tax base.
Central banks may intervene through unconventional means
Wu’s analysis suggests that instead of deploying traditional quantitative easing transparently, the US government and central bank may opt for alternative methods to inject liquidity into the market. Alongside Wu, macroeconomist Lyn Alden pointed out that this could include strategies like yield curve control and unannounced government bond buybacks.
The implication is that Bitcoin may become increasingly attractive as a safe haven asset for investors grappling with inflation. Ongoing pressure in bond markets, if it persists, could set the stage for a new price cycle for Bitcoin.
