The performance of the stock and cryptocurrency market has been the focus of much attention over the last year. While the billions of dollars printed since the COVID pandemic resulted in new highs, analysts are increasingly voicing concern about the warning signs from the debt markets.
Despite interest rates remaining at record low levels the cracks in this system are becoming more apparent as yields on U.S. Treasury Bonds have “been rising dramatically,” according to Dylan LeClair, a market analyst. He posted the following chart showing the increase.
U.S. Treasury bonds yields for different durations. Source: Twitter
“Since November yields are rising rapidly, bond investors have begun to realize that with inflation at 40-year highs they are sitting in contracts designed to decrease in purchasing power.”
This is a historic development for the U.S. bond markets, as Pantera Capital’s February letter to investors noted. Pantera Capital stated that “there has never been a moment in history when year-over-year inflation was at 7.5% and Fed Funds at ZERO.”
The situation is worse when you look at real rates. This is the interest rate one gets after inflation. Panteral Capital stated that it was “at negative 5.2%”, a 50-year low.
Pantera Capital said,
“The Fed’s manipulations of the U.S. Treasury market and the mortgage bond market are so extreme that it is now $15 TRILLION undervalued (relative the 50-year average real interest rate).
Overvaluation of mortgage and treasure bonds. Source: Pantera Capital
While treasury bonds yields have been increasing, Bitcoin (BTC), and altcoins prices have fallen steadily. BTC is down more than 45% from Nov. 10.
BTC/USDT 1-day chart. Source: TradingView
Pantera Capital noted that the declines in crypto markets have been closely correlated to traditional markets. However, this could change soon as “crypto tends be correlated with them over a period of approximately 70 days, which is a little more than two months, then it starts to break its correlation.”
Pantera’s report says:
“And so, we think that crypto will decouple with traditional markets over the next few weeks and start trading on its own again.”
Related: Crypto investors hedge against risks ahead of March rate rise
Bitcoin will benefit from rising rates
Pantera Capital warned that the situation could improve despite the weakness in BTC following the talk about rising interest rates. They said that the 10-year interest rate would triple to 1.34% to 4%-5%.
This could be a good time to acquire Bitcoin, based on the old saying “be afraid when others are greedy and greedy when other are fearful”, Dan Morehead, CEO at Pantera Capital posted the following chart, suggesting that Bitcoin “seems inexpensive” and “doesn’t seem overvalued.”
Bitcoin price trend versus 4-year returns
“Once people have had a chance to really think about this, they will realize that blockchain is the most relative asset class in an environment with rising rates.
Morehead suggested that recovery could happen sooner than most people expect. It would only take “weeks or months” before we can rally very strongly.
“We are very bullish on this market and believe prices are at an affordable place.”
The total cryptocurrency market is now worth $1.722 trillion, and Bitcoin’s dominance rate at 41.6%.
com. You should do your research before making any investment or trading decision.
Eileen Wilson –Technology and Energy
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