Is Bitcoin the New Gold? How BTC is Defying Market Trends
Is Bitcoin the New Gold? How BTC is Defying Market Trends
Digital Asset Market: Bitcoin and other major cryptocurrencies saw a decline in prices, with BTC dropping by 3.5% and ether losing 4%. This was attributed to rising bond market yields and jitters in traditional financial markets. The launch of ETH futures ETF did not bring expected gains, adding to the overall bearish sentiment. There was optimism for a possible crypto rally in October, but experts advise caution as there are no significant catalysts driving it. Long-term investors continue to add to their holdings, while volatility in crypto markets is expected.
Despite the relatively small profit-taking activity that happened today, crypto (Bitcoin) has fared very well relative to the broader financial market (Gold, SPY, Rates). See chart below. With the lack of investment opportunities in traditional markets, we can expect increased activity in the crypto markets.
Macro Economics: The recent surge in federal spending has contributed to significant concerns about the debt crisis and its implications for the US fiscal situation. Billionaire investor Ray Dalio predicts a looming debt crisis and believes that how quickly it happens will depend on the supply and demand for U.S. debt. and suggested keeping a close eye on the "risky" U.S. fiscal situation and interest rate increases. Dalio thinks the economy could slow down significantly, potentially reaching zero growth, due to these factors.
Equities: The stock market fell on Tuesday as Treasury yields rose and the Fed made hawkish remarks, causing investor sentiment to dampen. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all experienced losses, and traders became more confident in an upcoming rate hike. The Department of Labor reported a surprising increase of 690K job openings in August, the largest monthly rise since July 2021, despite declining job openings and easing payrolls in previous months. However, skepticism remains about the accuracy of the data, as the BLS blames the low response rate for inconsistencies. Some speculate that the Biden administration may be using the data to maintain the illusion of a strong labor market in an otherwise struggling economy. The market initially reacted positively to the news, but doubts remain.
The Fed and the Banks: The 10-year and 30-year Treasury yields have risen to their highest levels since 2007. The rise in yields is fueled by a tight labor market and the Federal Reserve's efforts to bring down inflation. The Fed officials have indicated that rates may have to stay elevated for a prolonged period of time. Uncertainty remains about when or if another rate hike will occur. Rising yields have also brought back discussion about "bond vigilantes," investors who leave the market due to concerns over U.S. debt. The recent increase in yields has been attributed to concerns about the growing federal budget deficit and its impact on bond demand.
Geopolitical: A leaked US government strategy document shows the Biden administration is far more concerned about corruption in Ukraine than they publicly admit. The strategy outlines long-term goals for US policy in Ukraine with an emphasis on tackling corruption. The confidential version of the document uses even stronger language and warns that corruption could undermine the Ukrainian government's credibility. Recent corruption scandals have brought the issue back into the spotlight and the US is discussing the possibility of conditioning future economic aid on anti-corruption reforms. However, the idea of conditioning military aid is not being discussed as the US is determined to continue supporting Ukraine in its conflict with Russia. The strategy also calls for the adoption of NATO standards and the creation of a national resistance plan in case Russia gains more territory.
View from our desk
The recent wave of optimism that had buoyed the crypto markets took a hit today as investors opted to cash in on recent gains. This profit-taking activity coincided with increasing volatility in traditional financial markets, particularly with rising bond yields causing concern. Despite these headwinds, the crypto market has shown resilience compared to broader financial markets. We anticipate a resurgence of positive sentiment in the crypto space in the coming days, which should help drive prices upward once again.
On the economic front, mounting evidence suggests a significant slowdown is underway. We maintain our stance that the Federal Reserve has likely concluded its cycle of rate hikes. While it's always challenging to pinpoint market peaks and troughs, our analysis suggests that long-term yields, particularly the 30-year Treasury, are nearing their zenith. As of today, the 10-year yield stands at approximately 4.65%, while the 30-year yield is around 4.75%.
Given these figures, we find it unlikely that long-term rates will breach the 5% mark. In our view, we are approaching a peak in these rates. Investors should be vigilant for signs of economic faltering, as such indicators could prompt a swift reversal in rate positions, affecting both traditional and crypto markets.
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The 1Konto Team
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