In short: The relationship between Bitcoin, cryptocurrencies, and real yields is gaining significance. Fluctuations in real yields, which refer to US treasuries' yields adjusted for inflation, have implications for Bitcoin and other risk assets. Higher real yields often lead to a decline in Bitcoin and crypto prices as investors turn to safer investments. Factors affecting real yields include inflation and nominal rates, with inflation being the primary determinant. The recent increase in longer-dated US treasury issuance has also contributed to upward pressure on nominal yields. The expectation of declining inflation in the coming months may result in higher real yields, which can be bearish for risk assets like Bitcoin. The Federal Reserve's rate hikes aim to curb inflation but may unintentionally raise real yields, making fixed-income assets more appealing. Jerome Powell's upcoming address at Jackson Hole is highly anticipated by the crypto community, and his statement may impact Bitcoin and the market. Historical patterns have shown that Powell's speeches can have a significant influence on Bitcoin's price. However, the current market conditions and Powell's communication style should be considered before drawing direct comparisons. Market participants should be prepared for potential volatility during the Jackson Hole event. As of now, Bitcoin is trading at $26,589.
Our quick analysis:
In the vast arena of finance, a subtle yet intricate dance unfolds between Bitcoin, cryptocurrency, and real yields. While the traditional financial world grapples with shifting real yields, the cryptomarket finds itself entangled in the same web of fluctuations.
Real yields, for those unacquainted with the term, refer to the yield on US treasuries adjusted for inflation. It's a crucial metric that helps unravel the intricate threads of the broader financial ecosystem, with potential profound implications for risk assets such as Bitcoin and other cryptocurrencies.
Renowned analyst @tedtalksmacro shines a light on this captivating 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 highlights the delicate balance that Bitcoin and its crypto cohorts maintain within the larger financial market.
The path of real yields depends on two primary factors: inflation and nominal rates. The Federal Reserve's hiking cycle nears its end, with nominal yields potentially at their peak. However, the trajectory of inflation remains uncertain, and as @tedtalksmacro rightly notes, it will "likely be the greater mover of real yields."
Adding another layer of complexity, the recent surge in longer-dated issuance by the US Treasury exerts upward pressure on nominal yields, particularly at the back-end. Notably, the 10-year tenure is currently scaling heights unseen since the tumultuous year of 2008.
Turning to inflation, expectations lean toward 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 holds particular significance for the crypto community, as falling inflation might paradoxically spell trouble for risk assets like Bitcoin.
The Federal Reserve's aggressive rate hikes aim to rein in inflation. However, an unintended consequence of this strategy, combined with sustained high rates, could be a rise in real yields. This, in turn, makes fixed-income assets more appealing, potentially diverting investments away from riskier ventures like stocks and altcoins.
The crypto community eagerly awaits the address of Jerome Powell, the chair of the Federal Reserve, scheduled for this Friday. As @tedtalksmacro anticipates, Powell is expected to persist with the 'higher for longer' rhetoric, a stance maintained by the Federal Open Market Committee since late 2021. According to @tedtalksmacro, "Higher for longer + falling inflation + fresh duration issuance = higher real-yields = lower risk assets."
So, will Bitcoin and crypto tumble due to the upcoming Jackson Hole event? Keith Alan, founder of Material Indicators, draws attention to historical patterns and potential market reactions. Last year, Chair Powell's hawkish tone during his Jackson Hole speech triggered a 29% BTC dump, taking five months to recover. With Powell returning to Jackson Hole this Friday, Alan notes some similarities in the price action leading up to the event.
However, Alan advises caution in drawing direct parallels, stressing that macroeconomic conditions have changed, as has Powell's communication style. "To be clear, the similarities in the current price action, relative to last year, do not mean that price will react the same way this time," Alan states. He advises investors to stay vigilant but not reactive, as JPow's words have the power to move markets.
At the time of writing, Bitcoin traded at $26,589, and as the dance continues between real yields and cryptocurrencies, the cryptomarket eagerly awaits the next moves of this global financial performance.
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Disclaimer: Our articles are NOT financial advice, and we are not financial advisors. Your investments are your own responsibility. Please do your own research and seek advice from a licensed financial advisor beforehand if needed.
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