Bitcoin could ‘violate the framework’ through which digital currency is viewed, if…
Real-world factors often influence Bitcoin prices. At this very moment, crypto investors are struggling to keep their two eyes on a dizzying number of variables: the COVID-19 pandemic, crypto regulations worldwide, the Federal Reserve’s actions, government bonds, and many more.
To that end, investment analyst Anthony Pompliano discussed a surprising trend that several other market watchers had noted while comparing Bitcoin to treasury yields.
Do you “halve” some Bitcoin?
Pompliano first wondered what would happen to Bitcoin if the Fed increased interest rates. Many experts are reportedly worried that a rise in these rates will mean that riskier assets will be sold off. Bitcoin might be one of them.
However, Pompliano wondered whether Bitcoin’s increase in price in the last two years might have less to do with U.S. governmental actions than the halving in 2020. Building on this, he said,
“This inverse relationship is not what we are seeing between Bitcoin and Treasury yields though. We are actually seeing the exact opposite. Bitcoin’s price appears to be moving in lockstep with Treasury yields.”
My name is Bond. Government Bond
To refresh your memory, treasury yields refer to the return on investment on the bonds – or debt instruments – of the U.S. government. Experts in the tech sector have theorized that when treasury yields go up, tech stocks or risk assets go down.
But according to Pompliano and others in the Bitcoin community, this trend is changing and the two are reportedly matching up – for now, at least.
The direct correlation between $BTC and 10-year Treasury yields continues to be on display. This is NOT the dynamic we normally see between risk assets & yields. Typically they have an inverse correlation, not a direct one. #Bitcoin is working as an inflation hedge. Full thread↑ pic.twitter.com/OxwbDWkJOM— Caleb Franzen (@CalebFranzen) December 17, 2021
“But it would be very interesting if the prevailing consensus view is misplaced and Bitcoin would actually benefit from increasing interest rates. That would violate the framework that many people have been viewing the digital currency through.”
Finally, the exec concluded that if Bitcoin also rose along with interest rates, an “entirely new crop of investors” might start watching the market as well.
Mind your “hedge”
If you bought some Bitcoin around the start of the COVID-19 pandemic, is it now time for joy or regret? According to a report published by Arcane Research, an investor who bought Bitcoin in January 2020 would have owned an “excellent” inflation hedge during the pandemic.
Furthermore, their purchasing power would have surged by 520%.
The report stated,
“Bitcoin’s unmatched returns during this highly inflationary period illustrates that Bitcoin has indeed been an excellent inflation hedge.”