Around May 18, 2026, two names that originally belonged to different narrative worlds suddenly synchronized: Jeffrey Gundlach, known as the "new bond king," candidly stated in an interview that a rate cut at the next Federal Reserve meeting is "highly unlikely" and forecasted that next month's U.S. CPI is more likely to start with "4"; just days earlier, CITIC Securities had reminded in a research report that the 10-year U.S. Treasury yield surpassed the psychological barrier of 4.5% on May 15, with the 30-year yield also standing above 5.0%, while long-end government bond yields in the UK, Japan, and Germany rose in tandem. Coupled with the confirmation of Kevin Warsh as Federal Reserve Chairman, the market's fears of his hawkish leanings caused the consensus of "two rate cuts in 2025" to crumble in just a few weeks, as the play for "rate cuts" was abruptly interrupted by the reality of rising inflation and long-end rates spiraling out of control. For Bitcoin (BTC) and Ethereum (ETH), which are seen as high-volatility, long-duration assets closely related to growth stocks, this was not merely macro news, but an overall increase in the discount rates attached to valuation models—the question being how significantly the return of high-rate expectations would compress the risk appetite and pricing space in this crypto bull market.

Rate Cut Expectations Shattered: New Bond King Redirects Wind to Rate Hike Side

Just as the narrative of "two rate cuts in 2025" was being torn apart by inflation data, the market’s so-called "new bond king," Gundlach, threw another match into the fire. He openly stated that the next Federal Reserve policy meeting is "highly unlikely" to see a rate cut, and in the current environment, a cut is "absolutely impossible," pointing out that risks have shifted back toward the rate hike side—not a question of how long to pause, but whether rates can be pushed higher again. The underpinning of his judgment is primarily inflation: Gundlach expects next month's U.S. CPI is more likely to "break 4" or "start with 4," indicating that inflation stubbornness far exceeds the previously optimistic narrative in the market; once the data manifests, the Fed will find it challenging to justify a "premature pivot to easing" on political and credibility grounds.

More crucially, he pointed out the signals from the yield curve: the two-year U.S. Treasury yield is already nearly 50 basis points higher than the federal funds rate. In a traditional macro trading framework, the two-year is viewed as a concentrated pricing of future policy interest rate paths—when it is significantly higher than the current policy rate, it indicates the market is betting on higher future rates rather than lower ones. If the Fed were to hastily cut rates now, it would essentially openly violate the "higher, longer" guidance given by the curve, disrupting the re-anchoring of inflation expectations and being interpreted as "surrender" under heavy price pressures. Against this backdrop, Kevin Warsh's confirmation as Federal Reserve chairman has been packaged as the "Warsh Shock": the market begins to envision the upcoming monetary cycle with a more hawkish template, quickly revising the previous "two rate cuts" to "longer-lasting high rates, even potentially another hike." For capital, this narrative turn means shifting from a bias for high-duration assets favored during easing to commodities, energy, and industrial metals preferred by Gundlach himself, while the high-volatility and long-duration risk positions represented by BTC and ETH must be repriced under the shadow of “rate hikes back on the table.”

10-Year U.S. Treasuries Break 4.5%: Global Rates Simultaneously Enter High Pressure Zone

What truly woke the market from its "rate cut dream" was the collective repricing of long-end rates. On May 15, the 10-year U.S. Treasury yield officially surpassed the critical psychological threshold of 4.5%, while the 30-year yield reached 5.0%. This is not just a new high from a technical standpoint, but it signals to all asset pricing models that the far end of the risk-free yield curve has been raised collectively, necessitating a reassessment of the valuation premiums previously enjoyed by long-duration assets.

CITIC Securities promptly pointed out in a research report that there are signs of synchronized rising long-end rates in major developed markets—not just in the U.S., but also in the UK, Japan, and Germany, indicating a global rates environment entering a "high-pressure zone." The driving factors have been clearly unpacked: U.S. inflation data has risen sharply, the memory of the "Warsh Shock" has led the market to expect a more hawkish stance, and increased supply pressures on U.S. Treasuries compel the country to offer higher yields to attract capital; meanwhile, political turmoil in the UK and rising Japanese bond yields have raised concerns about potential capital returning to domestic debt markets. The synchronized rise in long-end rates across multiple countries means that the global risk-free yield center has been systematically elevated, forcing capital to reassess between “locking in higher yielding government bonds” and “bearing the volatility of high-risk assets,” which becomes the unavoidable background noise for BTC, ETH, and the entire risk asset chain.

BTC and ETH Under the Shadow of High Rate Expectations

As the 10-year Treasury yield returns above 4.5% and the 30-year rate stands firm above 5.0%, long-end rates are no longer just a curve for bond traders, but a pricing anchor for all “high duration assets.” For any asset perceived as driven by future earnings or long-term narratives, each step up in the risk-free rate translates to a passive increase in discount rates, compressing the story space that the valuation template can accommodate. In the eyes of institutions, BTC and ETH have consistently appeared more like high-volatility, long-duration "tech betas"—lacking existing cash flows, relying heavily on expectations about future network usage, institutional status, and risk preferences, thus naturally facing downward valuation pressure with the rise in long-end rates. CITIC Securities' warning about "long-end rates rising in tandem" indicates that not only the U.S. but also developed economies like the UK, Japan, and Germany are subtly adjusting their valuation floor across the risk-free yield curve, systematically narrowing the valuation premiums available for such assets.

This environment stands in stark contrast to that of 2020–2021. During that time, under the narrative of extremely low global interest rates and monetary easing, U.S. growth stocks and crypto assets had surged in tandem, as “rate cuts + balance sheet expansion” provided the greatest imagination for long-duration assets; now, the narrative has been replaced by "high rates lasting longer" and "rate hikes back on the table." Gundlach simultaneously warns that the next meeting is "almost impossible" to see a rate cut while anticipating that next month's CPI may "start with 4." Given that the two-year Treasury yield has already surpassed the federal funds rate by nearly 50 basis points, the market must reprice the "tighter, longer" monetary cycle. The direct consequence for crypto trading structures is a declining tolerance for volatility and pullbacks: historical experience shows that the crypto market is highly sensitive to expectations of interest rate changes and tightening liquidity; when rates are sharply repriced, leveraged capital, both long and short, is the first to be liquidated, and meme stocks, which are purely products of risk appetite, are also more prone to liquidity squeezes; in this chain, BTC and ETH serve as the most liquid hedging "relatively quality assets," also being the first chips to be liquidated when all high-beta positions are reduced.

Yield Spreads and USD Inflows: Invisible Pressure on On-Chain USD Assets

When the 10-year Treasury yield reinstates itself above 4.5% and the 30-year approaches and stabilizes at 5.0%, the choices facing global capital have been rewritten: on one end is the long-awaited high interest, regarded as the "risk-free yield anchor" of dollar-denominated asset; on the other end are the highly volatile, liquidity-sensitive high-risk assets. More troublesome is that this is not merely a case of the U.S. "going solo"—long-end rates in the UK, Japan, and Germany are rising simultaneously; the reminder from CITIC Securities about the "synchronized increase in long-end rates in major developed markets" indicates that the entire world is pricing in a longer-term environment of high interest rates, and the spread structure is pushing capital towards a combination of "local currency bonds + U.S. dollar bonds." Rising Japanese government bond yields are viewed as a potential trigger for overseas capital to flow back into the domestic market; such inflows typically accompany a rebalancing towards dollar assets, and the higher Treasury yields along with increased supply pressures necessitate higher coupons to attract subscriptions, effectively raising the overall appeal of risk-free assets priced in dollars, while creating a long-term bullish pull on the dollar index and dollar-denominated assets.

Under this yield spread structure, what is genuinely caught in the middle are on-chain dollar-denominated assets: on one hand, they consider themselves as "off-exchange cash substitutes" and "on-chain financial bases;" on the other hand, they must directly compete with offline Treasury bonds and money market funds for yield. When 10-year and 30-year U.S. Treasuries offer risk-free returns of 4.5% and 5.0%, any on-chain dollar yield product that fails to provide a significant premium after accounting for smart contract and counterparty risks will face the pressure of "deposits being siphoned off to offline assets." The capital managers are no longer just making decisions about "whether to allocate BTC/ETH," but rather first asking: why not put dollars into a basket of Treasury bonds and money market funds, and then squeeze some budget from the yield spread for high-volatility assets? This means that in the future, it is essential to not only observe the prices of BTC and ETH themselves but also monitor whether the scale of on-chain dollar assets experiences a sustained net outflow, and whether the yield spread between on-chain yields and long-term Treasury yields is forcibly widened, as this will directly determine how much truly "patient" dollar capital can still flow into the crypto market in this cycle of high interest rates.

From "Rate Cut Trades" to "Inflation Trades": Crypto Capital May Change Lanes

For a significant period prior, global markets had built a broad narrative of "at least two rate cuts in 2025" around the consensus: risk-free rates would come down, lower discount rates would allow high-duration asset valuations to be preemptively reset. Within this framework, the crypto market naturally favored high-growth, high-narrative sectors—future capacity, future users, future ecosystems could all be packaged into valuation models, betting that "as soon as liquidity is released, beta will lift everything." BTC and ETH were treated as high-volatility reflections of tech growth stocks; longer-duration public chains, narrative-driven tokens, and nearly cash-flow-less tokens that could tell grand stories emerged as the primary beneficiaries of this "rate cut trade."

Now, the script has been sharply twisted to another direction by Gundlach and the long-end U.S. Treasuries. He directly denies the possibility of a near-term rate cut and forecasts next month's CPI to "start with 4," while the 10-year and 30-year Treasury yields have surged to around 4.5% and 5%, respectively. CITIC Securities is also cautioning that long-end rates in developed markets may climb in tandem—this reflects a worldview of "higher rates lasting longer and stubborn inflation." In traditional assets, in such an environment, capital instinctively shifts attention to commodities, energy, and industrial metals, which are viewed as relatively inflation-resistant directions; Gundlach's preference for these commodities effectively sets the market's script for "inflation trades." For crypto capital, switching from pure beta speculation to new strategies means shifting the allocation logic from "whose story is farther" to "who can provide me with real returns or hedges in an environment of high rates and rising inflation": token designs tied to real asset prices, interest rate levels, or on-chain yield are better positioned to connect external inflation with internal cash flows; protocols around interest rate products and yield distribution that can offer a significantly higher risk premium than long-term Treasuries have a better chance of retaining capital that otherwise might have purchased 4.5%–5% Treasuries; however, long-duration narrative assets lacking in yields, anti-inflation characteristics, and solely reliant on emotional premiums might be actively reduced in this switch from "rate cut trades" to "inflation trades," leading to a performance divergence among sectors that will become a crucial observation window going forward.

Focusing on the Next Jumps in CPI and Long-End Rates

Returning to the starting point, the current episode of "rate cut fantasies breaking apart + rising long-end rates" uses 10-year yields above 4.5% and 30-year yields above 5.0% to rewrite the discount rates for global risk assets, including repricing BTC and ETH, which are high-duration chips. The linkage between U.S. CPI and long-end rates in the coming 1-2 months is key to the entire narrative: if, as Gundlach worries, the next reading "starts with 4," combined with the warning from CITIC Securities regarding major developed markets' long-end rates rising in tandem, the narrative of "re-inflation + second rise of long-end rates" will suppress expectations for a "soft landing" and easing; the Federal Reserve's response early in Warsh's tenure will also be interpreted by the market as a further endorsement of the high rate cycle. For crypto traders, the upcoming framework should upgrade from "only looking at prices" to three main lines: watching how rate expectations change with CPI and long-end yields, monitoring whether the relative returns of dollar assets continue to siphon off risk exposure, and observing the migratory tracks of on-chain capital between high-yield protocols and off-exchange rate assets—what truly determines whether this crypto bull market will hit the brakes or continue to run down the racetrack is not the next candlestick but how the CPI and long-end rates script a new macro narrative in the upcoming 1-2 months.

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