Bitcoin Surges 8% as Treasury Move Sparks Crypto Breakout

Bitcoin surged almost 8% yesterday, marking its largest one-day jump since March and taking the price close to $70K, its highest level since early June.

The move wasn't confined to Bitcoin. Ethereum gained almost 10%, rising to $2,098, while XRP and Solana also climbed more than 6%.

After weeks of consolidation, the move suggests that crypto could finally be waking up.

Treasury buyback announcement

The biggest catalyst was the U.S. Treasury announcing that it will at least double its buybacks of longer-dated securities, covering 10- to 30-year maturities, from $2 billion to at least $4 billion per operation.

The announcement came after the 30-year Treasury yield hit 5.337% on Tuesday, its highest level in 19 years, as investors became increasingly concerned about inflation, government borrowing and the U.S. fiscal outlook.

The announcement helped ease pressure at the long end of the Treasury curve. Lower long-term yields can make risk assets more attractive by reducing the relative appeal of holding government bonds.

That creates a more supportive backdrop for Bitcoin, stocks and gold.

It's important to note that this isn't quantitative easing. The Treasury is buying back old, illiquid bonds and funding with new issuance at the short end, rather than printing money.

However, the announcement does send a signal that Washington is prepared to intervene in the Treasury market if long-term borrowing costs become too disruptive. That was an important shift for markets after the sharp rise in yields earlier this week.

SEC Adds Another Crypto Catalyst

The Treasury announcement wasn't the only catalyst.

The Securities and Exchange Commission (SEC) also proposed its first dedicated token rules, providing a potential regulatory pathway for certain crypto assets without automatically bringing them under the same securities requirements.

The proposal comes as the Senate remains engaged in a last-ditch effort to get the Clarity Act across the line in a mid-September vote..

For Bitcoin, the combination of lower long-term yields and the prospect of a clearer regulatory framework creates a much more supportive backdrop than the market had just a few days ago.

But the speed of yesterday's move was not entirely down to fundamentals.

Short Squeeze Adds Fuel

Derivatives appear to have amplified the move.

Bitcoin had been stuck in a range for weeks, and many traders had positioned for another move lower. Once BTC broke higher, those short positions started getting liquidated.

Around $1.4 billion of shorts were liquidated over 24 hours, accounting for roughly 96% of total liquidations.

That created a classic short squeeze, with forced buying adding fuel to the move.

So while the Treasury announcement and the SEC proposal explain why Bitcoin broke higher, the derivatives market helps explain why it moved almost 8% in a single session.

The next test is whether Bitcoin can hold the gains now that the short squeeze has played out.

If long-term Treasury yields remain contained and regulatory optimism continues, the move could have further to run. But if yields start rising again, some of yesterday's gains could quickly unwind.

Bitcoin technical analysis

After a period of consolidation below the 50 EMA, Bitcoin has finally broken out, pushing above the 50 EMA, the 100 EMA, and the 67K July high to create a higher high, rising to a 10-week peak of 70k. The RSI is overbought, so a period of consolidation or pullback could be on the cards. 

Buyers will look to extend gains towards the 200 EMA at 71.5K. Above here, the outlook turns more constructive, and buyers could aim for 80K, the round number. 

On the downside, immediate support is at 67k and 66.4k, the 100 EMA. A break below here exposes the 50 EMA at 64.5k, ahead of 62.7k, the mid-August low.