Crypto Surpasses $3 Trillion as Bond Vigilantes Mitigate Tariffs
The current recovery in cryptocurrency prices can be linked to a collective of investors referred to as bond vigilantes, a term introduced by economist Ed Yardeni.
These investors act as a check on government actions by selling bonds when significant policy changes occur. This bond sell-off generally leads to higher yields, increasing borrowing costs for the government.
The surge in crypto prices is reminiscent of performances in the stock market. Major U.S. stock indices, including the Dow Jones and Nasdaq 100, have risen over 10% from their lowest points this month. International markets, such as the German DAX and French CAC 40, have also experienced gains.
Earlier this month, President Donald Trump addressed the nation in his Liberation Day speech. While imposing the highest tariffs on China, he also implemented a baseline tariff of 10% across the board, with varying additional tariffs by country.
However, Trump changed his stance after the so-called “bond vigilantes” took action. Investors effectively sold off bonds to pressure the government into reconsidering its policies.
“The Bond Vigilantes have struck again,” Yardeni observed. “In the context of U.S. financial markets, they are the only consistent performers in history.”
U.S. bond yields surged, with the 10-year Treasuries reaching 4.585% and the 30-year testing 5% for the first time since January.
The increase in bond yields implies that the cost of servicing U.S. public debt will rise. It also suggests that the president’s ambitions for significant tax cuts are likely to falter. Unfunded tax reductions would naturally elevate bond yields further.
Trump made a straightforward remark about the bond market:
“The bond market is very tricky. I was watching it.”
Crypto rallies
The price of Bitcoin (BTC) soared, revisiting the critical resistance level of $95,000 for the first time in over a month. Brett (BRETT), the leading meme coin on the Base blockchain, surged by 95% in the last seven days.
Other major coins like Virtual Protocol (VIRTUAL), Official Trump (TRUMP), Sui (SUI), and Dogwifhat (WIF) have all increased by over 50% in the same period. Consequently, the total market capitalization of all cryptocurrencies has surged to $3 trillion.
The actions of bond vigilantes also played a role in Trump’s decision to refrain from dismissing Jerome Powell from the Federal Reserve.
The U.S. president lacks the legal authority to remove the Fed chair without just cause.
If the Supreme Court allowed such an action to proceed, it could erode confidence in U.S. bonds and the dollar, potentially prompting bond vigilantes to offload Treasuries once again.
Trump also hinted at a willingness to negotiate with China, despite Chinese officials denying any ongoing discussions.
As a result, cryptocurrency prices might continue to rise in the coming weeks as tariff uncertainties diminish and prospects for Federal Reserve rate cuts improve.