Bitcoin dropped below $85,000 on 23 September after stronger-than-expected US business activity pushed Treasury yields higher and triggered heavy losses for leveraged traders.
The move halted a recovery that had gathered pace earlier in the week, when Bitcoin broke through a significant concentration of short positions. Selling accelerated after S&P Global published its September flash purchasing managers’ indexes (PMIs).
CoinGlass recorded $135.8m in crypto liquidations within an hour of the figures being released. Long positions accounted for $125.9m of that total, including $47.4m in Bitcoin and $23.9m in Ether.
Across the previous 24 hours, liquidations reached $510m involving 122,256 traders. Long traders accounted for $363.83m of the losses.
The market reaction showed how quickly the interest-rate outlook had shifted against investors positioned for further gains. The latest data pointed to faster US growth, while businesses reported renewed cost pressures, increasing the possibility that interest rates will remain high.
Strong growth brings renewed inflation concerns
S&P Global’s composite PMI rose to 58.4 in September, its highest reading in more than five years. The services index reached 58.7 and manufacturing climbed to 57, with all three measures exceeding expectations.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said historical comparisons indicated the survey was consistent with annualised economic growth of about 5%, including an estimated 4% expansion in the third quarter overall.
However, the stronger activity was accompanied by an unfavourable inflation signal. Companies reported their sharpest rise in input costs for four years, with higher oil prices increasing fuel and transport expenses. Supply-chain disruption also worsened, while backlogs grew.
Williamson said stronger demand combined with restricted capacity was giving businesses more ability to raise prices, increasing the risk that higher costs would feed through into inflation in the coming months.
“This growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff,” he said.
“Backlogs of work are consequently rising sharply. While this accumulation of uncompleted orders bodes well for the further expansion of output and capacity in the coming months, it also indicates that companies are developing more pricing power, and hence is a worry for the inflation outlook.”
Bond markets reacted quickly. The yield on 10-year US Treasury notes moved back above 5%, close to levels last seen in 2007, while the two-year yield reached its highest point in about 27 months.
The move also revived concerns about the extra yield investors could demand to absorb increasing US government borrowing.
James Lavish, co-managing partner of Bitcoin Opportunity Fund, said Treasury issuance was increasingly colliding with investor concerns about what he called structural dollar debasement. He argued that higher yields could reinforce the problem as rising interest costs increase government financing requirements and lead to more debt issuance.
Lavish said any later monetary intervention to absorb that supply could intensify concerns about the currency, creating a “self-reinforcing loop”.
Bitcoin’s rise above $86,000 earlier in the week forced short sellers to close positions and helped push it towards $87,000. With that support now largely exhausted and Treasury yields above 5%, the cryptocurrency needs new spot-market demand to regain $85,000.
