Bitcoin drops below $85,000 as the 5% Treasury yield once again weighs on risk assets

Bitcoin fell below $85,000 on Sept. 23 after stronger-than-expected US business activity lifted Treasury yields and triggered a wave of forced selling among leveraged long positions. The move broke the momentum behind a rebound that had accelerated earlier in the week, leaving the market exposed once the macro backdrop turned against higher-risk assets.

Stronger US Business Activity Reverses the Rebound

The shift began with S&P Global's September flash purchasing managers' indexes. The composite PMI rose to 58.4, its highest level in more than five years. The services index increased to 58.7, while manufacturing reached 57. All three readings came in above expectations.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said historical comparisons suggest the survey is consistent with annualized economic growth of about 5%. He also indicated roughly 4% growth for the third quarter overall.

The report did not only show faster activity. It also carried a less favorable inflation signal. Companies reported the steepest increase in input costs in four years, as higher oil prices lifted fuel and transportation expenses. Supply-chain bottlenecks worsened, and backlogs increased.

Williamson said the combination of stronger demand and limited capacity was giving companies greater pricing power, raising the risk that cost increases could feed into inflation in the coming months. He noted that, excluding the pandemic, the survey showed some of the most severe supply-chain bottlenecks in its near-two-decade history. Companies also reported increasing problems finding suitable staff.

Liquidations Accelerate After the PMI Release

Selling intensified within an hour of the data release. According to CoinGlass, $135.8 million of crypto positions were liquidated. Long positions accounted for $125.9 million of that total.

Bitcoin accounted for $47.4 million of the wipeout, and Ether another $23.9 million. Over the past 24 hours, losses totaled $510 million across 122,256 traders. Long traders lost $363.83 million.

The liquidation pattern showed how quickly traders had positioned for further upside. The market had been riding momentum after Bitcoin pushed through a large concentration of short positions earlier in the week. That short-covering phase helped accelerate the move toward $87,000. Once the bond market moved, the support that had helped lift prices was removed.

Bond Yields Turn Against Risk Assets

Bond markets responded immediately to the PMI data. The 10-year Treasury yield moved back above 5% to around levels last seen in 2007. The two-year yield climbed to its highest level in about 27 months.

For crypto traders, higher yields matter because they can reduce appetite for assets that do not pay interest. The market had been interpreting the rebound as a sign that demand could return after a period of weakness. The fresh macro data suggested that the path for rates might be higher for longer.

James Lavish, Co-Managing Partner of Bitcoin Opportunity Fund, offered a broader explanation for the pressure. He argued that Treasury supply is increasingly colliding with investor concerns over what he described as structural dollar debasement. In his view, higher yields can become self-reinforcing as rising interest costs increase the government's financing needs, requiring still more debt issuance.

Lavish added that any eventual monetary intervention to absorb that supply could deepen currency concerns, creating what he described as a self-reinforcing loop.

What This Means for Bitcoin's Next Test

The immediate message from Wednesday's PMI report was that the US economy was growing faster than expected, giving the Federal Reserve greater room to keep policy restrictive. At the same time, rising input costs and higher oil prices complicated the inflation outlook.

That combination created a difficult setup for Bitcoin. The market had already benefited from a squeeze that cleared much of the bearish positioning that helped propel its latest advance. By the time the macro data arrived, Bitcoin had less short-covering fuel left to support prices.

Bitcoin now faces a more demanding environment. To reclaim $85,000, it will need fresh spot demand rather than a mechanical squeeze. With Treasury yields above 5% and US growth still surprising to the upside, buyers must step in without the same tailwind that helped Bitcoin push through $86,000 and accelerate toward $87,000 earlier in the week.