Crypto Market Crash Risk Rise as Bond Yields Rise, ETF Outflows Jump

Key Insights

• A crypto market crash could gain momentum as U.S. bond yields rise.
• Short-term Treasury yields moved above 4% following stronger-than-expected labor data.
• Investors are watching Wednesday’s U.S. inflation report for clues on Federal Reserve policy.

Another crypto market crash could be on the horizon as U.S. bond yields rise and investors continue withdrawing funds from crypto exchange-traded funds (ETFs).

US Bond Yields Signal the Fed Needs to Hike Rates

One main catalyst for a broader crypto market crash is the fact that US bond yields are rebounding. The two-year yield jumped to 4.2%, its highest level since February last year.

Similarly, the ten-year yield rose to 4.55% and is hovering near its highest point this year. It has been in an uptrend after bottoming at 3.928% in March this year. The longer-term bond yield has remained solidly above the important support level of 5%.

These yields have continued rising after a series of strong jobs numbers were released last week. For example, a report by the Labor Department showed that the number of job openings in the US jumped by over 700k in April.

ADP, the biggest payroll company in the world, also released a report showing that private employers added over 122k jobs in May. Finally, the biggest labor market news came out on Friday, which showed that the economy added 172k jobs.

These job numbers are important because the Fed has a dual mandate of ensuring that the labor market is strong and that inflation is stable. In this case, there are signs that the labor market is doing well, which may motivate the Fed to hike interest rates.

Therefore, the next important crypto news to watch will be the US inflation report that comes out on Wednesday. Polymarket data shows that most traders expect the upcoming numbers to show that the headline CPI jumped 4.2% in May.

If this is correct, it means that the Fed will be under pressure to hike interest rates in the coming months. Indeed, Polymarket traders anticipate at least one rate hike this year. Bitcoin and the broader crypto market normally underperform the market whenever the Fed is hiking rates.

Bitcoin and Ethereum ETF Inflows are Continuing

The other risk facing the crypto market is the fact that American investors continue to redeem their ETFs, with many of them doing so at a loss.

Data shows that the spot Bitcoin ETFs lost over $96 million in assets on Monday, bringing this month’s total outflows to $1.81 billion. These funds have now lost over $4.2 billion in the last two months, eclipsing the $3.2 billion they added in March and April this year.

Spot Ethereum ETFs have also lost assets this month. They lost $90 million so far, bringing the two-month outflows to over $630 million. They now hold $9.6 billion in assets.

Other altcoin ETFs have struggled, a sign that demand remains weak. For example, the recently launched VanEck BNB ETF (VBNB) has only had one day of inflows. It added $1.21 million on June 3 and has not experienced more gains after that.

Spot XRP ETFs have had just $2.2 million in inflows this month, much lower than the $131 million they added last month.

Bitcoin Price Technicals Suggest More Downside

A closer look at Bitcoin’s technicals suggests that the coin has more downside to go in the near term. It has already crashed below all moving averages, and the recent rebound from $59,800 to $62,700 looks like a dead-cat bounce.

The coin has also formed an inverted cup-and-handle pattern, a common bearish continuation sign. It is also below the Ultimate Support of the Murrey Math Lines tool.

Therefore, the price will likely continue falling in the near term, potentially to the key support level at $50,000. If this happens, it will likely lead to more weakness in the crypto market.

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