What happens to Bitcoin if US bond yields soar above 5%?

Bitcoin (BTC) has shown resilience amid the escalating US-Iran conflict, but emerging signs of upside exhaustion suggest a potential downturn. This is largely attributed to an "out-of-control" bond market, with US benchmark yields potentially rising by 200 basis points if the conflict prolongs. Historically, oil-linked conflicts have fueled inflation and diminished risk appetite, indicating that BTC prices could fall below $50,000 by 2026.

Soaring US Yields and Inflation Fears

Since late February, the benchmark 10-year Treasury yield has surged to approximately 4.42%, a nine-month high, driven by the war-induced oil price spike. This has intensified fears of rising inflation, increasing the likelihood of no interest rate cuts in 2026. While a temporary pause in direct strikes has eased immediate concerns, ongoing cross-border attacks suggest the conflict is far from contained. Market watchers anticipate further increases in US bond yields, with some technical analysts predicting the 10-year yield could reach 6.4% if it breaks a key resistance level. A US 10-year yield exceeding 5% could trigger sell-offs in Bitcoin, especially if it continues to be treated as a risk asset.

Historical Parallels of Oil Shocks and Market Reactions

Past oil-linked conflicts offer a glimpse into potential market reactions. Short-term conflicts typically caused brief fluctuations in yields and stocks. However, prolonged supply shocks have historically led to sustained yield increases and pressure on equities. For instance, the 1973 Yom Kippur War saw yields climb as inflation took hold, coinciding with a significant drop in the S&P 500. The 1979 Iranian Revolution resulted in a more substantial bond market reaction, while the 1990-91 Gulf War saw moderate yield increases and a milder stock market drawdown. The 2022 Russia-Ukraine war also correlated with higher yields and an initial dip in the S&P 500. The current US-Iran conflict appears to be following a similar early pattern, suggesting that prolonged conflict and high oil prices could lead to further yield increases and a potential decline in risk assets like Bitcoin.

Bitcoin's Potential Downside and Future Outlook

From a technical standpoint, Bitcoin's price may decline to $50,000 or lower in the coming months if it breaks its current bear flag pattern. Prediction markets reflect this sentiment, with a 70% probability of Bitcoin falling below $55,000 in 2026 and a 46% chance of it dropping below $45,000. Arthur Hayes, co-founder of BitMEX, suggested that an extended US-Iran war could compel the Federal Reserve to loosen monetary policy, which would be bullish for Bitcoin. He indicated he would consider buying Bitcoin when central banks begin printing money to support the economy amidst such a conflict.