• Bitcoin runs into selling pressure as rates go higher and Wall Street turns risk-averse.

• Leveraged funds are the most bearish in bitcoin futures since April 2022.

Bitcoin (BTC) tumbled about 9% Thursday and briefly sank below $25,000 on Binance, the world's largest crypto exchange, as what had been a relatively boring August turned into a bloodbath as Wall Street turns more risk-averse.

The CoinDesk Bitcoin Index slumped to the lowest level in two months. Ether (ETH) fared no better, plunging 11% to about $1,600.

Binance Coin (BNB), a token associated with the exchange where selling pressure was especially intense, dropped almost 7%

The broad CoinDesk Market Index (CMI) was lower by 8.9%.

U.S. interest rates hit multi-year highs

Among the factors behind the selling is a continued surge in global interest rates, particularly in the U.S., where the 30-year Treasury bond rose to 4.42%, its highest level since 2011, according to Bloomberg. The 10-year yield at 4.32 has risen to just a basis point shy of about a 15-year high.

That's helped put a damper on not just crypto prices, but risk assets in general. Though holding the flatline today, the Nasdaq is lower by about 6% for the month of August.

"Higher bond yields signal a weaker investment case for equities," macro analyst Noelle Acheson wrote in a market report Thursday morning. "Tighter credit leads to lower growth, higher discount rates bring down cash flow valuations, and the equity risk premium has plummeted to 2007 levels."

"Higher bond yields also suggest a weaker investment case for non-yielding assets such as BTC and gold," she added. "However strong the hard asset case may be, yield is yield, and BTC and gold don’t have any."

Spot bitcoin ETF hopes

While bitcoin bulls have pointed to what they hope will be the SEC's imminent approval of a spot bitcoin ETF, there's no guarantee the SEC even makes a decision in 2023 on any of the numerous applications in front of the agency, let alone give its approval.

Another positive catalyst might be a favorable court decision for Grayscale – owner of the Grayscale Bitcoin Trust (GBTC) – in its lawsuit against the SEC to force approval of its attempt to convert that trust into an ETF. There had been some hope a ruling could come on Tuesday, but that day has passed and now watchers are eyeing Friday as a possibility.

Bearish bets on BTC

The downside volatility in BTC also comes days after the U.S. Commodity and Futures Trading Commission's (CFTC) report on commitment of traders (COT) showed leveraged funds – hedge funds and commodity trading advisors – ramped up bearish bets in the CME-listed cash-settled bitcoin futures in the week ended Aug. 8.

"Two-thirds of their positions are short (shown in red) versus one-third long (shown in blue). That's the widest it's been in since April 2022," Lawrence Lewitinn, director of content at crypto analytics firm The Tie's, said in a weekly newsletter.

Perhaps sophisticated traders are worried about potential spillovers from murky macro outlook and rising nominal and inflation-adjusted U.S. government bond yields.

Besides, the crypto market has been indifferent to recent positive crypto-specific developments like the launch of a stablecoin by PayPal, one of the largest financial services companies in the world and a string of applications for futures-based exchange-traded funds (ETFs) tied to ether (ETH).

"Whether that's one of the largest financial services companies in the world launching a stablecoin using public blockchain infrastructure or renewed excitement for futures-based ETH ETFs on the back of a flurry of new applications, both volatility and volume metrics continue to drop to multi-year lows," David Lawant, head of research at institutional trading desk FalconX, said in a market update.

"Overall, while the improving trends and fundamentals in crypto continue to sustain optimism, it's a good time to keep a close eye on any potential spillover impacts from macro to broader risk assets and, by extension, crypto," Lawant added.

Bitcoin's renewed downside volatility is consistent with its record of putting interim tops after notable rallies in meme coin SHIB. The self-proclaimed dogecoin-killer surged over 20% in the first 12 days of the month, predominantly on optimism that a layer 2 Shibarium launch would help the cryptocurrency revamp its image as a serious industry player.

Since Aug. 12, the cryptocurrency has pulled back 18%, with prices falling 9% in the past 24 hours alone amid Shibarium's turbulent start. Funding rates in SHIB perpetual futures trading on Binance have crashed to a two-month low of -0.084%, according to data source Coinglass.

The negative figure indicates that shorts are paying longs to keep their bearish positions open. In other words, leverage is skewed bearish.