Financial markets’ risk-free rate, the yield on U.S. Treasury securities, is rising again. Crypto maximalists often dismiss this as background noise, but when the rate rises sharply, it often competes for capital with stocks and other assets. History shows that the resulting market adjustments tend to be painful.

Jurrien Timmer, director of global macro at Fidelity Investments, highlighted this dynamic in an X post, noting that rising Treasury yields from the 1960s through the mid-1990s made government bonds competitive with equities.

Investors who ignored the higher opportunity cost of capital learned the hard way from the 1987 crash, known as Black Monday. The Oct. 19 crash sent the Dow Jones Industrial Average plunging by 508.32 points, or 22.6%, in a single day. It’s still the largest one-day percentage drop in history.

Timmer’s reminder is timely, as yields have generally been rising since the Covid market crash in 2020, echoing the beginning of the multi-decade uptrend that started in the late 1950s. Right now, the 30-year yield is hovering at its highest level since 2007 and could rise further if Wednesday's U.S. CPI beats estimates, validating higher-for-longer Fed interest-rate expectations.

If yields increase, every other asset, including stocks and bitcoin, will need to justify its price with stronger earnings or cash flows. For bitcoin, the situation is more complex than for stocks because the cryptocurrency has neither earnings nor cash flow. Its value rests entirely on its appeal as a perceived digital gold and a hedge against fiat currency depreciation.

This doesn't necessarily mean history will repeat itself, crashing both stocks and bitcoin. But there's no denying that capital that was once abundant and chased narrative and momentum now has a safer alternative.

Against that backdrop, forecasts for bitcoin prices to rise to $500,000 or $1 million in the coming years appear a bit stretched. Stay alert!

Read more: For analysis of today's activity in altcoins and derivatives, see Crypto Markets Today . For a comprehensive list of events this week, see CoinDesk's "Crypto Week Ahead."

What’s trending

  • U.S. SEC sets meeting to propose Reg Crypto to support certain digital assets offerings (CoinDesk): On Aug. 24, the SEC will propose its first formal rule to set more durable regulations for crypto businesses, in this case, a regimented path for legal issuance of digital assets.
  • U.S.-Iran standoff sends oil up, dents stocks (Reuters): Oil prices rose on Tuesday as negotiations between the U.S. and Iran over a peace deal ​and the reopening of the Strait of Hormuz hit an impasse while uncertainty over global inflation tempered stocks worldwide.
  • Bitcoin's 'strongest hands' are back, on-chain data show (CoinDesk): The number of wallets holding at least 10,000 BTC has climbed back to 90, a six-month high. Over the past eight weeks, the count of these “whale” wallets has risen by 7.1%.