The price adjustment of Bitcoin (BTC) this week showed that the market is not growing in a straight line. Meanwhile, another concern is the sharp rise in yields on 10-year US government bonds.
In recent weeks, yields on 10-year US government bonds have risen 35% to a new high of 1.44%, the highest since the cross of assets in March 2020.
Treasury returns bounced off 60-year lows
Interest rates on 10-year government bonds have risen in recent weeks, similar to the period before the economic downturn in 2000 and 2008. Consequently, higher interest rates are usually a sign of a weak economy and can have serious consequences around the world. Many markets.
As interest rates rise, governments will have to pay more for their underlying government bonds. This, combined with current economic conditions in the post-COVID-19 period and public debt accounting, are factors that do not surprisingly worry economists.
However, when looking at the above diagram from a technical point of view, this whole path can still be seen as a minor carrier test of the previous level of support.
This example is shown with an earlier attempt to test the resistance above. This can also happen here, as prices fall again from the 1.53% level. But it is important to keep an eye on this level, as breaking it can have a serious impact on the markets.
Government bond yields also affect the mortgage markets. Given that the real estate market is currently overheating and people are taking on huge debts to buy homes, raising interest rates could trigger the whole bubble, similar to what happened in 2008.
Profitability, however, also affects other markets as gold also responds to these movements. But is it different this time? How will Bitcoin respond to these potential macroeconomic shocks?
Dollar weakness against bitcoin
The US Dollar Index (DXY) continues to show weakness with rising returns, which is generally good for bitcoin bears. This indicates that investors are running away from the dollar towards more risky and more profitable investments such as Bitcoin.
From a technical point of view, however, the DXY experienced a second decline of 91.50 points, followed by a further decline in the dollar, as shown in the chart above. The 90-point level is being tested again now, and the main question is whether this level will continue as support.
However, it is still controversial whether higher earnings have had any direct impact on the bitcoin price, especially in recent days. Meanwhile, the DXY is often inversely correlated with the bitcoin price, although it has declined in recent months (see below).
BTC traded in correlation for 90 days against US dollars, VIX, gold and the S&P 500. Source: data on digital assets.
After the crash in March 2020, this reverse relationship intensified until September 2020, when the dollar’s weakness coincided with a significant increase in the price of bitcoin.
Of course, assets are only tied up, so they are not tied up, and many other factors can have a much greater impact on Bitcoin in the short term – such as miners or whales selling Bitcoin, government regulations, and so on.
Why does gold show weakness?
The three-day gold price chart shows a clear correction since August 2020. Even more important is that rising interest rates and a weak dollar have not affected the gold market as much as the Bitcoin market.
Even with recent income growth, people are not buying gold. In fact, higher returns have not historically benefited from gold – at least in the short term – because higher returns will make government bonds more attractive for mutual funds to hold and as a risk-free asset in the portfolios.
As interest rates continue to rise to higher levels, so does the uncertainty surrounding the economy, and investors usually begin to switch from dollars to gold paradise. This was evident in the 1980s, when returns increased by about 14% and gold also climbed to all-time highs.
BTC is becoming more important in the economy as a whole
In the current situation, however, the fall in gold prices can only be an immediate reaction to the increase in profitability in general. However, there is another possibility: An increasing number of investors are choosing digital gold over precious metal, not only because of the higher up potential, ie risk and reward, but also because these positions are easier to liquidate.