Over the past year or two, there has been a lot of focus on the performance of the stock and cryptocurrency markets, with trillions of dollars squeezed since the start of the COVID pandemic setting new records, but now analysts are doing so. Sound the alarm. Above the warning signs coming from the debt market.
Despite keeping interest rates at record lows, loopholes in the system became more apparent as US government bond yields “cut off” according to market analyst Dylan Leclerc, who released the following chart showing the rally.
US government bond interest rates by term. Source: Twitter
“Since November, interest rates have risen sharply — bond investors are beginning to realize that with inflation at a 40-year high, they are sitting in contracts programmed to plummet in purchasing power.”
The event marks the first of its kind in US bond markets, as reported in a February letter to investors published by Pantera Capital, which stated that “there has never been a time in history when inflation was 7.5% on an annual basis and the Fed funds were at 7.5%. Void .”
Things get even worse when you look at real interest rates, or the post-inflation interest rate, as Bantral Capital noted, “at minus 5.52%, the lowest point in 50 years.”
Panthera Capital LLC.
“The Fed’s manipulation of the US government bond and mortgage market is so extreme that it is now overvalued by $15 trillion (compared to the 50-year average real interest rate).”
Reassessment of tax and mortgage bonds. Source: Pantera Capital
While interest rates on government bonds have risen, bitcoin (BTC) and altcoins have been dropping steadily, with BTC down more than 45% since November 10th.
BTC/USDT 1-day chart. Source: Trading View
The decline in the cryptocurrency market so far has been largely correlated with traditional markets, as Pantera Capital notes, but that could soon change because “the cryptocurrency tends to correlate with it over about 70 days, a little over two months. his relationship.”
According to the Panthera report,
“And so we believe that over the next few weeks, crypto will essentially stop the traditional markets and start trading on its own again.”
On this topic: Cryptocurrency investors are hedging risks ahead of the March rate hike
Rising exchange rates will benefit Bitcoin
Despite the marked weakness in BTC since talk of a rate hike began, things may soon improve according to Pantera Capital, which warns that “10-year interest rates will triple from 1.34% to around 4%-5%.”
Based on the famous saying “Be afraid when others are greedy and greedy when others are afraid”, now is the best time to accumulate BTC because the “four-year yield is at an all-time low.” Its historic location” according to Dan Morehead, CEO of Pantera Capital, who published the following chart indicating that Bitcoin “looks cheap” and “does not look overpriced.”
Bitcoin price trend compared to 4 years of returns.
“When people have had time to think about it, they will realize that if you look at all the different asset classes, blockchain is the best relative asset class in the face of rising prices.”
As for the recovery timeline, Moorhead’s suggested coverage could come sooner than many expect, and it’s just a matter of “weeks or a few months before we have a big hit.”
“We are quite optimistic about the market and we think the prices are relatively low.”
The total market capitalization of the cryptocurrency is now $1.722 trillion, and the bitcoin dominance rate is 41.6%.