Bitcoin And Crypto Faces Pressure: Impact Of Rising Real Yields
24 August 2023 - 12:45PM
NEWSBTC
The intricate dance between Bitcoin, crypto and real yields is
becoming increasingly pronounced. As the world of traditional
finance grapples with the implications of shifting real yields, the
BTC and crypto market is not immune to these fluctuations. For the
uninitiated, the ‘real yield’ refers to the yield on US treasuries,
adjusted for inflation. This metric is pivotal in understanding the
broader financial ecosystem, and its movements can have profound
implications for risk assets, including Bitcoin and other
cryptocurrencies. Higher Real Yields = Bitcoin And Crypto Down
Renowned analyst @tedtalksmacro recently shed light on this
intricate relationship, stating, “An important correlation – BTC +
US real yields. Simply, higher real yields drive investors to cash
and fixed-income… and out of ‘riskier’ assets like BTC and stocks.”
This observation underscores the delicate balance that Bitcoin and
other cryptocurrencies maintain with the broader financial market.
The path of real yields is determined by two primary factors:
inflation and nominal rates. With the Federal Reserve’s hiking
cycle nearing its end, nominal yields are potentially at their
zenith. However, the trajectory of inflation remains uncertain, and
as @tedtalksmacro notes, it will “likely be the greater mover of
real yields.” Adding another layer of complexity, the US treasury’s
recent influx of longer-dated issuance is exerting upward pressure
on nominal yields, especially on the back-end. The 10-year, for
instance, is trading at highs not witnessed since 2008. Related
Reading: Why Is Bitcoin Price Up Today? On the topic of inflation,
expectations lean towards a decline in the coming months. As
@tedtalksmacro astutely points out, “If you have been following
along, [this would be] conducive to higher real yields. Higher
real-yields are bearish for risk-assets.” This observation is
particularly salient for the crypto community, as falling
inflation, counterintuitively, might spell trouble for risk assets
like Bitcoin. The Federal Reserve’s aggressive rate hikes aim to
curb inflation. Yet, the unintended consequence of this strategy,
combined with sustained high rates, could be a rise in real yields.
This makes fixed-income assets more appealing, potentially
diverting investments away from riskier ventures like stocks and
altcoins. The crypto community awaits Jerome Powell’s address this
Friday with bated breath. As @tedtalksmacro anticipates, Powell is
likely to persist with the ‘higher for longer’ rhetoric, a stance
the FOMC has maintained since late 2021. “Higher for longer +
falling inflation + fresh duration issuance = higher real-yields =
lower risk assets,” concludes @tedtalksmacro. Will BTC And Crypto
Fall Due To Jackson Hole? Keith Alan, founder of Material
Indicators, draws attention to historical patterns and potential
market reactions to Jackson Hole. “Remember when FED Chair Powell
spoke from Jackson Hole last year and his hawkish tone triggered a
29% BTC dump that took 5 months to recover? JPow returns to JHole
this Friday and there are some similarities in the PA we are seeing
now and the PA we saw leading up to last year’s speech.” Related
Reading: Bitcoin Exchange Reserve Shoots Up, Pain Not Over Yet?
Alan highlights the technical patterns observed in Bitcoin’s price
movements leading up to Powell’s previous speech and the current
scenario. However, he cautions against drawing direct parallels,
emphasizing the changed macroeconomic conditions and Powell’s
evolved communication style. “To be clear, the similarities in the
current PA, relative to last year’s PA do not mean that price will
react the same way this time,” Alan states. He underscores the need
for investors to be vigilant, yet not reactive, to the potential
market volatility surrounding the upcoming Jackson Hole event. “We
must expect JPow’s words to move markets.” At press time, BTC
traded at $26,589. Featured image from iStock, chart from
TradingView.com
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