As the value of bitcoin goes up, it becomes more, not less, investable. As such, bitcoin’s market performance this year can seem troubling from that perspective. gckaloudis writes about Price & Macro Risk in this week’s Crypto Long & Short newsletter.
at a moment’s notice. If the world’s biggest economy struggles to recover, that could spell doom or opportunity for bitcoin, depending on how you view it.Meanwhile, while trawling through data to back up the notion that interest rate increases should lead to lower stock prices I came across something interesting. Looking at the 30-day correlation of bitcoin to 10-year U.S. Treasury yields and the Nasdaq to 10-year U.S.
When Treasury yields go up, that’s either because interest rates have increased or demand for Treasurys has fallen. This might be counterintuitive, but in order to get someone to buy a Treasury the seller would have to sell it for less if fewer people want it, which increases the yield . Higher interest rates mean that investors could get higher interest on Treasurys from the government, so they’ll pay less for already issued Treasurys with lower interest rates.
All said, given we are in a rising interest rate environment, I expected this relationship to be negative. At least, I expected it to be consistent. As yields go up because of increased interest rates, risk-on assets like stocks should go down. Perhaps investors remain unconvinced that we are headed toward a recession so yields are up because of suppressed demand for Treasurys. Maybe investors believe that a supply-driven economic slowdown will prove less potent than a demand-driven one.
My take is that markets were expecting higher interest rate hikes and signaling that more heavy hikes were on the way, so the previously priced-in doomsday scenario was undone after the announcement.
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