Investors remain wary that the $29-trillion U.S. Treasury market is flashing a warning sign, which may force the Federal Reserve to intervene.

But that might buoy Bitcoin if prices rise as the central bank introduces more liquidity into markets, says one analyst. 

Benchmark yields have trended upward since Treasuries were hit with a selloff on Monday. Ten-year yields were hovering around 4.36% on Thursday, despite a small surge on Wednesday after U.S. President Donald Trump decided to pause most of his reciprocal trade tariffs, according to CNBC. 

Jake Ostrovskis, an OTC trader at market maker Wintermute, told Decrypt on Thursday that most institutional investors thought the bond market was starting to break before the president stepped in and lowered tariffs to 10% for all nations but China.

“A lot of people were looking at this being like, ‘there’s no way it’s going much further,’” he said. “If this was to blow up again, then crypto is not going to be able to stand up against it.”

Analysts have attributed the recent jump in yields to inflation jitters and foreign selling, but Ostrovskis said that the unwinding of Treasury basis trades explains a large part of it.

Effectively, hedge funds have built up $1 trillion worth of leveraged positions in the bond market, seeking to capitalize on small discrepancies between the price of Treasury futures and the current price of Treasury securities. Those leveraged bets are now being unwound, as traders get a tap on the shoulder and are being asked to take down risk, he said.

Based on the way that those trades are structured, he said there’s been outstanding selling pressure for Treasuries. The disturbance’s feedback loop is reminiscent of a carry trade involving the Japanese Yen that rattled markets when it unwound in August, which was also marked by forced selling.

In 2020, when U.S. Treasury basis trades were unwound, the Federal Reserve took several actions to stabilize the market alongside the coronavirus pandemic, including purchasing massive amounts of securities and expanding repurchase agreements, per Brookings.

If the Fed is forced to intervene this time around, instead of letting markets melt down, Ostrovskis said the crypto market will likely surge. “It’ll probably be the best performing asset,” he added, saying the Fed’s intervention will involve an injection of liquidity.

According to crypto provider CoinGecko, Bitcoin has fallen about 4% since the beginning of the month as tariff considerations intensified but is still up 15% over the past year, with some analysts recently suggesting it is returning to its roots as a hedge against economic uncertainty.

U.S. Treasury Secretary Scott Bessent downplayed concerns on Wednesday, telling Fox Business that the bond market fluctuations may be painful but do not pose outsized risk.

“I believe that there is nothing systemic about this — I think that it is an uncomfortable but normal deleveraging that’s going on in the bond market,” he said.

Edited by James Rubin