The Fed's rate cut is unlikely to shake the bond market and the dollar, as Bitcoin long positions face new challenges.

Bitcoin long positions have been hoping that the Fed will cut interest rates, leading to a decline in bond yields and a weaker dollar, thereby bringing a new round of risk appetite to the crypto market. However, despite strong expectations for rate cuts, the yield on the 10-year U.S. Treasury and the dollar index have shown resilience, challenging this traditional logic.

The market generally expects the Fed to cut interest rates by 25 basis points on December 10, continuing the easing cycle that began last September. Several institutions even predict that interest rates will further decline to 3% next year. According to historical patterns, falling interest rates usually suppress Treasury yields and weaken the dollar, creating a favorable environment for risk assets such as Bitcoin.

But the reality is quite different - the 10-year Treasury yield remains firmly above 4%, having even risen by 50 basis points since the first rate cut in September. The “stickiness” of Treasury yields may stem from factors such as a surge in bond supply due to worsening fiscal deficits, the stickiness of inflation, and rising market expectations for interest rate hikes by the Bank of Japan. As Japanese government bond yields rise, this historically low force on global borrowing costs is fading, further pushing up U.S. Treasury yields.

At the same time, the dollar index has not continued to weaken. Although it has shown a downward trend since April this year, it rebounded strongly after hitting around 96 in September, challenging the 100 mark several times. The dollar remains resilient amid easing expectations, reflecting a diminishing applicability of the old logic that “rate cuts are bearish for the dollar.” The relatively strong performance of the U.S. economy also supports the dollar.

The robust bond yields and the dollar index indicate that the previous linear pattern of “Fed dovish = risk assets rising” is no longer reliable. The short-term trend of Bitcoin may therefore be more uncertain, and the market needs to be alert to new changes in macro signals.

Investors should remain cautious, as various signs indicate that the effectiveness of traditional macro catalysts is weakening. (CoinDesk)