The Silent Order
Chinese regulators have quietly issued a verbal directive to commercial banks: curb exposure to U.S. Treasuries. The move, reported by Bloomberg early Monday, advises institutions to limit new purchases and pare down existing holdings of U.S. government debt. While explicitly framing the guidance as a risk management measure against volatility rather than a geopolitical weapon, the market impact was immediate.
U.S. 10-year yields spiked 4 basis points to 4.25% before settling at 4.21%. Bitcoin, caught in the crossfire of tightening global liquidity, struggled to hold the $70,000 support level, trading at $70,087 (-0.55%) as Asian markets closed.
The $298 Billion Overhang
The directive targets a specific, massive tranche of capital: the estimated $298 billion in dollar-denominated bonds held by Chinese commercial lenders. Unlike the state’s official foreign exchange reserves, these commercial holdings are more sensitive to regulatory nudges and can be unwound rapidly.
The guidance does not apply to China’s state holdings… but reflects growing caution among policymakers over the risks posed by large holdings of US debt amid heightened market swings.
Market makers are pricing in a “liquidity air pocket.” If Chinese banks begin a structural unwind, the resulting supply glut in Treasuries typically forces yields higher. For Bitcoin, which correlates inversely with real yields and liquidity abundance, this mechanical tightening outweighs the theoretical “store of value” narrative in the short term.
The “Sell America” Trap
This directive pours fuel on the emerging Sell America trade. With the Dollar Index (DXY) already softening near 4-year lows, Beijing’s retreat signals a broader diversification away from U.S. assets that includes major players like India and Brazil. While a weaker dollar is historically bullish for crypto, the transition period, marked by bond market volatility, is violent.
Institutional desks are now hedging against a “correlation-one” event where a Treasury sell-off drags down all risk assets, including crypto. Bitcoin remains entangled in this macro rotation; until the bond market finds a floor, liquidity remains the primary vector of risk.
