Unsustainable Bond Yields Will Lead to Hyperbitcoinization: Analyst

Rising government bond yields signal a coming “structural” shift that will create a Bitcoin “supercycle” of rising prices, as investors flee debasing assets for one that cannot be inflated, according to Shang Wu, a senior research analyst at crypto exchange BitMEX.

The yield on the 30-year US Treasury broke past 5.14% on Tuesday, while the Bank of Japan’s 10-year government bond yield touched 2.8%, Wu said.

These yields are unsustainable in the long-term and will force governments to choose between debasing their currencies and a “sovereign debt collapse,” Wu said.

Bond yields for US and Japanese government debt from April 2024 to May 2026. Source: BitMEX

“Central banks are backed into a corner. They must choose between a sovereign debt collapse and debasing their currencies,” Wu said. According to the analyst:

“For Bitcoin, the upcoming volatility will be chaotic in the short term, but it serves as the ultimate structural tailwind for a long-term supercycle.”

The analysis comes as the US national debt crosses $39 trillion, and growing geopolitical tensions threaten to boost government spending, while the ongoing war in Iran causes a surge in energy prices and a corresponding inflationary spike.

Related: Bitcoin bounces as Trump prepares to announce ‘negotiated’ Iran deal

Rate hike won’t solve problem, it will simply bankrupt the government

Central banks typically use higher yields to tamp down inflation by restricting access to credit; when borrowing costs are high, consumers and investors borrow less, and asset prices fall.

However, the $39 trillion US national debt, which continues to grow due to deficit spending, makes it impossible to control inflation by raising interest rates, as the higher rates would also increase the government’s debt servicing costs, Wu said.

A forecast of what the annual US budget would look like if bond yields spike to 7%. Source: BitMEX

“With the national debt at $39 trillion, keeping rates at these levels means the annualized interest expense of the government will soon consume the entire federal tax base,” according to the analyst.

Wu and others, including macroeconomist Lyn Alden, say that the government and central banks will attempt to disguise quantitative easing by adding liquidity through other methods like yield curve control and unannounced buybacks of US government debt.  

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