Bitcoin Gains 43% in Q3 Despite Rising Treasury Yields

Bitcoin climbed 43% and Ethereum rose 71% during the third quarter, even as the 10-year Treasury yield hit 5.34% on Oct. 1. This marked the largest quarterly increase in the 10-year yield this century, creating a challenging environment for risk assets.

The surge in yields acted as a headwind for crypto, particularly impacting leveraged positions. On Sept. 23, a stronger PMI report pushed yields higher, causing Bitcoin to dip below $85,000 and triggering $135.8 million in long liquidations within a single hour. A separate energy-related shock involving oil prices and bond yields later led to approximately $568 million in forced liquidations.

Open interest on selected exchanges dropped 14.3% by Sept. 25 as traders adjusted to higher costs of capital. The rise in benchmark rates has increased the expense of borrowing for perpetual futures, options, and collateralized loans, while also pressuring treasury-focused companies that rely on equity premiums to fund purchases.

Despite these macro pressures, US-traded spot Bitcoin ETFs saw $6.3 billion in inflows during the quarter, while Ethereum ETFs attracted $3 billion. Citi has adjusted its 12-month Bitcoin forecast to $113,000, citing institutional interest from advisers and brokerages as a primary driver of demand.

The high-yield environment is also reshaping DeFi. With 10-year Treasuries near 5%, DeFi protocols face increased competition for capital. Research indicates that stablecoin borrowing and deposit rates are increasingly linked to Treasury yields, forcing DeFi products to offer higher returns or incentives to remain competitive against tokenized Treasury offerings.

Looking ahead, the market remains sensitive to bond and oil price volatility. If yields remain near 5%, analysts suggest Bitcoin may continue to rally in bursts, though data-driven shocks could trigger further liquidation events. Conversely, a decline in yields could improve conditions for basis trades and institutional adoption.