BM Pro Daily - Bitcoin Falls As Rates Rise
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Rising Yields Impact Bitcoin Price
Our analysis throughout much of 2022 in regards to the bitcoin price action has held steady. Capital markets are in the midst of a deleveraging period due to elevated inflation readings hitting multi-decade highs, in an environment of historically low bond yields.
While on the surface, high yields may seem to be bullish for stocks and bitcoin, the reality is that the credit market is the dominant driver. Higher inflation and increasingly hawkish central bank monetary policy has led to a historic rout in the bond market.
When fixed-income instruments sell off, it leads to higher financing costs. Rising yields lead to higher discount rates, which lower the valuations of assets like real estate and equities, which further compounds the market selloff.
We have covered this dynamic extensively as of late.
The reason why we have been so focused on the macroeconomic environment in our bitcoin-specific analyses as of late is because the dominant driver in the bitcoin market currently is the liquidity tide, and less bitcoin’s native market conditions.
Said simply:
This is why bitcoin is trading very close in tandem with equity markets, in particular the Nasdaq 100 Index, as the assets have a 0.85 correlation over the past four weeks of trading.
Junk bonds made new lows during today’s trading, as yields continue to rise in the face of increasing inflationary pressures.
Due to these market dynamics, bitcoin has been trading nearly in a 1:1 fashion with the inverse of the VIX (S&P 500 volatility index) throughout 2022. This is a historical look at BTC and VIX over previous years:
Our thesis is simple. Bitcoin is a global monetary asset with a known fixed supply. The U.S. dollar is a debt-based fiat currency with a malleable supply, and during periods of credit contraction those dollars increase in value against risk assets despite the long-term assurance of increased supply and devaluation.
For these reasons, and due to the reality that the global economy cannot function with this much debt with elevated yields for long, we believe bitcoin is the best asset to own. The credit system is in the midst of an unwind, but when — not if — the Federal Reserve intervenes, it is a fantastic bet that bitcoin will outperform everything else.
In the meantime, the supply continues to be constrained as HODLers of last resort continue to reduce supply available on the market.
brilliant write-up as usual dylan
Great information. Thank you.