Here's the One Thing Bitcoin Traders Should Be Watching

Investment banking giant Bank of America's (BAC) latest take on the U.S. Treasury market is arguably the most important thing for investors in both bitcoin BTC$75,699.27 and traditional markets.

The sell-off in the U.S. Treasuries appears overdone, with prices trading at a significant discount to their 200-day simple moving average and yields at multi-year highs. Bond prices and yields move in the opposite direction.

Historically, oversold Treasury notes have presaged major volatility explosions in various corners of the global financial markets, including cryptocurrencies, according to BofA Securities.

"Bonds oversold: Treasuries trading >5% below 200dma; note oversold sell-offs all coincided/foreshadowed "events”: Oct’87 crash, May’94 Tequila crisis, Jun’99 internet bubble, Mar’21 crypto pop, Oct'22 Nasdaq pop," BofA analysts said in a note titled "The Price of Money" sent to clients on Oct. 5.

Traders worldwide closely tracked the U.S. Treasury market since it affects global liquidity conditions. Falling bond prices and rising yields tend to drain money from other risk assets, as observed over the past 18 months.

The chart shows U.S. Treasury prices relative to their 200-day SMA with +2 and -2 standard deviation lines marking overbought and oversold levels.

The latest oversold reading looks analogous to the one observed in early 2021, following which bitcoin rose to new record highs above $60,000. By the end of May 2021, bitcoin fell back to $30,000. In other words, broader markets, including bitcoin, could soon see increased price turbulence.

At press time, the leading cryptocurrency by market value was changing hands at $27,950.