Bonds and IPO Markets Simultaneously Impacting the Cryptocurrency Space, What's Next for Bitcoin?
Where Did All the Money Go?
The S&P 500 was still at a historic high last week, and the Nasdaq completed nearly seven weeks of gains. The 30-year US Treasury bond yield surged to 5.12%, the highest since 2007. SpaceX's Pre-IPO contract on Hyperliquid saw $40 million in trading volume on the first day.
Money seems to be flowing everywhere except into crypto. BTC just rose above $82,000 on May 14, but in recent days, it has dropped below $77,000. ETH also took a hit, falling nearly 10% during the week from the $2300 range to $2110. Solana has fully retraced its recent surge, dropping back to $84 from a high near $100. The crypto industry seems to lack substance beyond the hype.
Both risky assets, why is crypto lagging behind?
30-Year Bond Yield Hits Nearly 20-Year High
The bond market is becoming the new center of gravity for global capital.
The 30-year US Treasury bond yield has reached its highest level since June 2007, rising from 4.63% at the end of February to 5.12%. At the same time, the 10-year bond yield hit 4.6%, and the two-year bond yield rose to 4.08%.
It's not just the US. In a report on Sunday, May 17, Apollo Global Management's Chief Economist Torsten Slok stated that G7 countries' 10-year or longer-term government bond yields have all reached their highest levels since 2004, collectively approaching 5%.
Government deficits around the world are expanding, requiring more borrowing and bond issuance. The US fiscal deficit still accounts for around 6% of GDP. The rising cost of borrowing is making it harder for governments to spend their way out of crises, especially as many countries are facing crises due to the current geopolitical tensions.
In a report on May 18, Deutsche Bank's Jim Reid pointed out that the bond issue is likely to be one of the agenda items at the two-day G7 finance ministers' meeting that opened that day in Paris. However, the structural issues in the bond market are not something that any one ministerial meeting can solve.
At a time of high geopolitical tension, global capital favors assets with predictable returns.
The outflow data of the Bitcoin ETF also serves as evidence of this.
According to SoSoValue data, the Bitcoin spot ETF saw a net outflow of $1.039 billion during the week of May 11 to May 15, ending the previous six consecutive weeks of net inflows, marking the largest single-week outflow since late January.
Looking specifically at the product level, ARKB saw a net outflow of $324 million for the week, IBIT saw a net outflow of $317 million, and both flagship products experienced simultaneous bleeding. The intraday data paints an even sharper picture. On May 12, there was a net outflow of $233 million, on May 13, a single-day outflow of $635 million, and on Friday, May 15, a total outflow of $290 million across 11 Bitcoin ETFs, indicating that institutional funds are orderly retreating.
A comparison with data from previous weeks better illustrates the intensity of the turnaround. In the week of April 17, there was a net inflow of nearly $1 billion, followed by $824 million in net inflows on April 24, and still $623 million in net inflows on May 8. In just one week, the funding situation completed a reversal from "continuous inflows" to "a single-week outflow of $10 billion."
During the same period, Ethereum ETFs also saw a net outflow of $255 million, experiencing five consecutive days of negative outflows. The entire crypto ETF asset class saw a collective turnaround in mid-May.
The attractiveness of the bond market has increased, naturally reducing the relative attractiveness of crypto.
A $4 Trillion IPO: How Does Crypto Win?
Bonds have drawn risk-off funds. IPOs have attracted risk-on funds, which can be seen as the most direct liquidity drain from crypto.
There is $4 trillion in IPOs queued up for 2026, a figure significant enough to reshape the global capital allocation landscape.
SpaceX has become the next focal point of the market. In this environment, pre-IPO and new IPO strategies offer an attractiveness that bonds cannot provide, namely a nonlinear wealth effect.
At the same time, AI narratives are the main narrative of 2026. In a report on May 15, Evercore analysts pointed out that U.S. economic data shows continued strong demand, especially with the surge in capital expenditures related to AI. The flip side of this wave of AI capital spending is AI leaders creating life-changing wealth effects in the secondary market.
The profitability of names like Nvidia and Cerebras has made any crypto narrative appear less attractive.
More notably, even on-chain activity is helping traditional markets steal the spotlight.
On the night SpaceX launched Trade.xyz, Pre-IPO contracts on Hyperliquid saw a first-day trading volume of $40 million. The HIP-3 platform is using perp to conduct price discovery for traditional stocks. Hyperliquid itself also surged by 10% to $45 as a result, becoming the only mainstream asset in the crypto market to rise against the trend. Related reading: "SpaceX IPO's biggest winner may be Trade.xyz".
In the short term, this is not good news for native crypto assets.
On-chain liquidity is being directed towards pricing traditional stock targets like SpaceX, rather than flowing back to Bitcoin, ETH, Solana. Even the surge in Hyperliquid is fundamentally not due to the crypto narrative but rather the dividend of the traditional asset narrative.
Wash Takes Office, but Rate Cut Could Be Overturned
The bond market and IPO market have siphoned liquidity from the crypto market. Looking at the Fed, the additional liquidity we anticipated may not materialize.
Powell's term ended on May 15. Wash was confirmed by the Senate last week to serve as the Fed Chair, currently awaiting the committee's formal appointment by the President and completing asset divestment to comply with ethical standards.
Even before Wash's official swearing-in, he is already facing some challenges.
Trump nominated Warsh in part because he hoped Warsh would be more aligned with the White House's cost-cutting agenda than Powell. Treasury Secretary Bessent has been integrating lowering the cost of government borrowing into the core of the White House's cost-cutting commitment for the past few months. He elaborated on this in a speech at the New York Fed last fall, saying that reducing the cost of government borrowing would mean lowering corporate borrowing costs, reducing mortgage rates, and easing auto loan payments, thereby increasing the affordability for all Americans.
But as mentioned earlier, the reality today is that the bond market has already pushed the five-year inflation outlook to 2.7%, the highest since 2023. Yardeni Research directly pointed out in a report on May 17 that the 2-year Treasury bond yield of 4.08% is the market's way of telling the Fed that the current 3.50%-3.75% target range is set too low.
According to Powell's own logic, he should continue to raise interest rates, or at the very least not cut them. However, the White House, especially Trump himself, has made their political desire for rate cuts almost public.
On the other hand, for those who have listened to Powell's testimony before taking office, they would know that Powell spent a lot of time discussing AI during the hearing. He believes that AI will boost productivity, lower inflation, and thus supports rate cuts. But the problem is, short-term data is not showing any signs of this.
The opinion of Interactive Brokers' Chief Economist José Torres, which represents a significant portion of the population, can be seen in a report dated May 15. He concluded that due to a lack of progress in geopolitical conflicts, the market has abandoned bets on rate tightening.
If Powell chooses to succumb to Trump's political pressure and forcefully cut rates, the bond market will respond with higher long-term yields, making all duration assets more vulnerable. If Powell chooses a hawkish stance, then this year's rate cut expectations will be dashed, and the market's bets on loose liquidity will need to be entirely repriced.
However, this means that the market's bets over the past few months on Powell's rate cut upon taking office may be completely overturned.
HYPE Leading the Crypto Market
After the leverage meltdown in the crypto market following October 10, the recovery phase should have relied on new capital inflows.
With a $4 trillion IPO lineup in 2026, AI names continue to create a wealth effect. In this environment, the appeal of meme coins in the transaction mix is continuously diluted. Even Bitcoin, the most institutionally favored crypto asset, is starting to give way to traditional markets. The $1 billion outflow from ETFs in a single week is the most direct evidence.
High bond market interest rates, Bitcoin ETF outflows. The recovery phase is indefinitely prolonged, and crypto is still unable to keep up with the overall rally in risk assets.
However, it is worth noting that there are already some diverging trends within the crypto market.
Hyperliquid saw a 15% weekly increase to $48, with a 69% year-to-date gain, driven by the narrative around the Pre-IPO price discovery on HIP-3. Assets that can tell a new story and provide access to traditional markets continue to rise, while assets relying solely on beta are being undervalued, with even Bitcoin taking a back seat.
Zooming out to observe the overall financial market, we can see three forces in recent weeks draining liquidity from the crypto space simultaneously. The bond market is enticing risk-free capital back with a 5% yield, IPOs are absorbing incremental risk budgets with a $4 trillion queue size, and the new Fed Chair, Powell, may not fulfill this year's rate cut expectations.
However, there are also bullish indicators for the next phase of Bitcoin.
The upside catalyst is the August enactment of the "CLARITY Act." This is the crypto sector's most significant policy tailwind this year, and the increase in regulatory certainty will directly unleash some of the pent-up institutional demand.
The downside risk is that, before the catalyst materializes, Bitcoin may need to retest $70,000. If the current support level at $77,000 is breached, the next significant support level is likely around $70,000.
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