Bitcoin continues to lag below its 200-day moving average, struggling to gain traction even as U.S. lawmakers move forward on crypto regulation, with rising Treasury yields emerging as the dominant market force.

Despite the Senate Banking Committee advancing the Clarity Act—a key step toward establishing a formal market structure for digital assets—bitcoin has remained on the back foot. Investor focus has instead shifted to the bond market, where yields have been climbing sharply.

The U.S. two-year Treasury yield touched 4.05% during Asian trading hours, its highest level since mid-2025. It has risen 13 basis points this week and more than 65 basis points since March, signaling a notable shift in expectations around Federal Reserve policy.

The surge in yields follows stronger-than-anticipated inflation readings. April’s CPI and PPI data reinforced concerns that inflation could remain sticky, driven in part by higher energy prices and ongoing geopolitical tensions linked to Iran.

As inflation concerns intensify, markets are recalibrating their interest rate outlook. With the Fed’s benchmark rate currently sitting between 3.50% and 3.75%, the move higher in short-term yields suggests investors are increasingly pricing in the likelihood of at least one additional rate hike.

CME FedWatch data indicates that the probability of a December rate increase has climbed above 44%, roughly doubling from a week earlier. This represents a sharp reversal from earlier expectations that the Fed would pivot toward rate cuts before the end of 2026.

The current trajectory in yields runs counter to President Donald Trump’s calls for aggressive rate cuts. Trump has pushed for borrowing costs to fall as low as 1% to stimulate growth. However, Federal Reserve Chair Jerome Powell has maintained a cautious stance, keeping policy relatively steady after gradually lowering rates from around 5% in 2022.

Market participants are also beginning to consider the future leadership of the Fed. Former governor Kevin Warsh is seen as a potential successor and is widely viewed as more supportive of looser monetary policy, though for now the Fed remains under Powell’s guidance.

Elevated Treasury yields are increasing the opportunity cost of holding assets like bitcoin and gold, which do not generate income. As government bonds offer more attractive returns, capital is being drawn toward these lower-risk instruments, which also underpin global financial markets as key sources of collateral and liquidity.

Bitcoin is currently trading around $81,000, showing limited movement on the day and still sitting below its 200-day moving average near $82,000—a level closely watched by traders as a signal of longer-term trend direction.

Gold has also edged lower, falling 0.7% to $4,614.

In contrast, tokenized Treasury products are seeing increased demand. Higher yields are making on-chain access to government debt more appealing, pushing total value locked in these platforms beyond $15 billion and highlighting growing investor interest in yield-bearing digital assets.