The Treasury Sell-Off Is Weighing on Bitcoin, Gold, and the Stock Market Heavily
Both traditional and crypto markets are experiencing a sell-off with gold puking and USD strengthening. However, Bitcoin has other variables in its favor.
Bitcoin continues to consolidate between the $40-$50k range, with the cryptocurrency market also experiencing pain, down between 5% to 15%.
The price of Bitcoin is back under $48k and Ether around $1,487.
In the macro-environment, the stock market is also experiencing losses. S&P 500 is down 3.4% this week to 3,768, a loss of 4.2% from its Feb. 12 high of 3,934.
Tech-heavy Nasdaq is recording even deeper losses of 9.7% and has been in a downturn since hitting its ATH in the second week of February at 14,095. Nasdaq has slid 6.4% this week.
The traditional safe-haven asset gold is no different as it continues to go down, hitting $1,690 per ounce this week, last seen in early June.
The US dollar Index (DXY), meanwhile, has climbed to a three-month high above 91. Gains by the greenback have been the result of rising Treasury yields, which are inversely related to its price.
Treasury yields have been rising on the back of increasing inflation expectations driven by the skyrocketing central bank balance sheets, increasing vaccinations, and reopening economies.
Rising rates are damaging for Bitcoin because then one can hedge against inflation via rates instruments and won’t need gold and Bitcoin, said trader and economist Alex Kruger. And that’s why precious metals have been taking a beating. Kruger said,
“While rising reals still represent a headwind by reducing institutional demand and negatively impacting risk sentiment…Many want to buy bitcoin regardless of what rates are doing. Rates and governments' response to covid opened the adoption floodgates. You can slow the flow, but can't close the dam.”
Rates surging, however, are expected to be only temporary as the central bank won’t let them run amuck.
The European Central Bank has the flexibility to counter any rise in bond yields, said the bank’s vice president. “We have room for maneuver, and we have ammunition,” said Luis de Guindos.
Meanwhile, the Federal Reserve chairman, Jerome Powell, didn’t express concern about a recent sell-off in bonds but reiterated that they would keep interest rates low for a long time.
While sticking to his dovish tone, Powell said on Thursday that the sell-off wasn’t “disorderly” or likely to push long-term rates so high the Fed has to intervene. He said in a Wall Street Journal webinar on Thursday,
“We monitor a broad range of financial conditions, and we think that we are a long way from our goals.”
“I would be concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals.”
Over the concerns of inflation, Powell said it’s likely prices will move up in the next year, but they won't stay up, “and certainly not staying up to the point where they would move inflation expectations materially above 2%.”
Meanwhile, in Denmark, negative rates have already gone mainstream, charging even those retail depositors holding amounts as low as $16,000.