Your CPU can't handle running the game with unlimited framerate and encode the stream at the same time.
You could and should limit your ingame fps, but even then it's possible that the CPU is too slow (if so, you need to use NVENC instead).
3500kbit/s will be blurry/pixelated on 720p 60fps, you could try 30fps or increase bitrate to 6000kbit/s.