The rising yields of US Treasury bonds are having an impact on the prices of Bitcoin and Ether, according to a recent article by DigiDeutsche. The article explains that Treasury bonds have a significant influence on all tradable markets, including cryptocurrencies. It states that the calculation of risk in finance is relative, and loans, mortgages, and cryptocurrency derivatives all depend on the cost of capital attributed to the US dollar.
The article explores the potential consequences if the US government were unable to service its debt, highlighting the impact it would have on families, companies, and countries that hold these bonds. It suggests that the lack of interest payments would likely lead to a global tightening of the US dollar, triggering a cascading effect.
However, the article also points out that cryptocurrencies can act as a hedge in times of uncertainty. It cites the example of Bitcoin outperforming traditional wealth preservation assets during the US-China trade war in May 2021. Bitcoin gained 47% during that period, while the Nasdaq Composite lost 8.7%.
The article notes that the general public owns over $29 trillion in US Treasury bonds, making them the least risky asset class. However, the price of these bonds and their traded yield can vary depending on the contract period. Inflation expectations are identified as the most important price factor for these government bonds.
The article then examines the relationship between the demand for US Treasury bonds and the prices of Bitcoin and Ether. It explains that higher demand for government bonds leads to lower yields. If inflation is not curbed, investors will likely seek higher yields when trading government bonds. On the other hand, if the US government is actively devaluing its currency or if additional inflation is expected, investors will tend to seek refuge in US Treasuries, resulting in lower yields.
The article highlights that the 5-year government bond yield hit 4.05% on June 22, its highest level in over three months. This suggests that investors do not expect inflation to fall below the central bank’s 2% target anytime soon. However, it also shows confidence that the peak of the Consumer Price Index (CPI) in June 2022 is behind us. The article emphasizes that government bond pricing works differently, as investors are willing to trade rewards for the security of owning the lowest-risk asset.
The article includes a chart comparing the yield on 5-year US Treasury bonds with the price of Bitcoin/USD. It notes that the typical inverse correlation between Bitcoin and US Treasury yields has been debunked over the past 10 days, possibly due to investors buying Treasuries for safety despite the yield being below inflation expectations.
The article suggests that the higher yields may be explained by the S&P 500 index, which measures the US stock market, being down just 7.6% from its all-time high. It states that investors’ appetite for inflated stock valuations is limited, and they typically look for scarce and inflation-protected assets ahead of turbulent times.
The article concludes by discussing the risks of a recession and economic crisis. It mentions that the US Conference Board leading indicators have declined for 14 straight months, indicating investors’ expectations of a recession. It suggests that Bitcoin’s recent decoupling from the inverse yield correlation of the US Treasury Department may be quickly reversed, as government bond yields are higher than normal due to expectations of an imminent recession.
The article includes disclaimers stating that it does not contain any investment advice or recommendations. It emphasizes that every investment and trading activity involves risk, and readers should conduct their own research before making decisions. The article also clarifies that it is provided for general informational purposes and should not be construed as legal or investment advice. The views and opinions expressed in the article are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
How are the rising yields of US Treasury bonds impacting the prices of Bitcoin and Ether?
The rising yields of US Treasury bonds are impacting the prices of Bitcoin and Ether, according to a recent article by DigiDeutsche. The article explains that Treasury bonds have a significant influence on all tradable markets, including cryptocurrencies. It states that the calculation of risk in finance is relative, and the cost of capital attributed to the US dollar affects loans, mortgages, and cryptocurrency derivatives.
The article also explores the potential consequences if the US government were unable to service its debt, explaining that this would have a significant impact on families, companies, and countries that hold these bonds. The lack of interest payments would likely lead to a global tightening of the US dollar, triggering a cascading effect.
However, the article notes that cryptocurrencies can act as a hedge in times of uncertainty. It cites the example of Bitcoin outperforming traditional wealth preservation assets during the US-China trade war in May 2021. Bitcoin gained 47% during that period, while the Nasdaq Composite lost 8.7%.
The article emphasizes that the general public owns over $29 trillion in US Treasury bonds, making them the least risky asset class. However, the price and traded yield of these bonds can vary depending on the contract period. The article identifies inflation expectations as the most important price factor for these government bonds.
The article then discusses the relationship between the demand for US Treasury bonds and the prices of Bitcoin and Ether. It explains that higher demand for government bonds leads to lower yields. If there is no curb on inflation, investors will likely seek higher yields when trading government bonds. Conversely, if the US government is actively devaluing its currency or if additional inflation is expected, investors will tend to seek refuge in US Treasuries, resulting in lower yields.
The article highlights that the 5-year government bond yield reached 4.05% on June 22, its highest level in over three months. This suggests that investors do not expect inflation to fall below the central bank’s 2% target anytime soon. However, it also indicates confidence that the peak of the Consumer Price Index (CPI) has been reached.
The relationship between US Treasury bonds and cryptocurrencies like Bitcoin and Ether is fascinating. As these bonds have a significant impact on the economy, it’s crucial to explore how they can influence the volatile crypto market.
This article provides valuable insights into the fascinating and complex relationship between US Treasury bonds and cryptocurrencies like Bitcoin and Ether. Understanding this impact is crucial for investors and enthusiasts alike as it sheds light on the interconnectedness of traditional financial instruments and the rapidly evolving digital asset space.