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Observers Cautious for Bitcoin as U.S. Inflation-Adjusted Bond Yield Hits 2-Year High


www.coindesk.com 06 April 2022 10:25, UTC
Reading time: ~2 m

Just when you think the crypto-native developments have put the market on solid footing, macro factors threaten to make the ground shaky again.

Specifically, the surging inflation-adjusted and nominal government bond yields in the U.S. and worldwide could complicate matters for risk assets, including bitcoin and traditional store of value assets like gold.

According to the St. Louis Bank of Federal Reserve, the U.S. 10-year real or inflation-adjusted Treasury yield has risen to -0.38% this week, the highest since early June 2020. While the yield remains negative, it has seen a near-90 degree rise of 66 basis points in four weeks.

"Another big leg up for gold and bitcoin will likely occur when real yields stop rising. We are not there yet," Jeroen Blokland, founder and research head at investment research platform True Insights, tweeted.

Kaiko Research's weekly newsletter published Monday said, "typically rising borrowing costs hurt risk assets such as tech stocks and crypto, which appear less attractive to investors than safe-haven bonds."

Bitcoin means many things to many people. For crypto believers, bitcoin is a digital version of gold and an alternative to the U.S. dollar, a global reserve currency. However, traditional market investors largely treat it as a risk-on asset similar to stocks. That's evident from its strengthening correlation with the S&P 500 and technology stocks.

Asian stocks traded lower at press time alongside losses in the European equity futures, per Investing.com. On Tuesday, U.S. stocks fell more than 1% and the rally in yields picked up the pace after Fed Governor Lael Brainard said the central bank could resort to a rapid balance sheet runoff to bring U.S. monetary policy to a "more neutral position" later this year.

Bitcoin changed hands near $45,500 as of writing, according to CoinDesk data. Accumulation by Luna Foundation Guard (LFG) and an uptick in stock markets perhaps overshadowed the rising real yield and helped the cryptocurrency carve out gains following the mid-March rate hike. LFG's confirmed bitcoin address shows the accumulation has slowed this month, making bitcoin vulnerable to adverse macro developments.

"Now risk aversion is gradually rising, and the dollar index has reached its year-to-date highest level," Griffin Ardern, a volatility trader from crypto-asset management company Blofin, said. "The liquidity contraction may be accelerating. At 2 p.m. EST, details of the March FOMC meeting will be announced."

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