A lot of attention has been paid to the performance of the stock and crypto markets over the last two years as the trillions of dollars that have been printed since the start of the Covid pandemic have driven new all-time highs, but now analysts are making sound the alarm more and more about the warning signs coming from the debt market.
Despite keeping interest rates at record lows, the cracks in the system have become more apparent as US Treasury yields “have risen sharply”according to market analyst Dylan LeClair, who has published the graph below showing the increase.
“Since November, yields have risen dramatically: bond investors have started to realize that, with inflation at 40-year highs, they are sitting on contracts timed to decrease their purchasing power.”
This development marks a first for US debt markets, as noted in the February letter to investors published by Pantera Capital, which it states that “there has never been a time in history with 7.5% year-over-year inflation and ZERO Fed funds.”
Things get even worse when you look at real rates, or the interest rate gesture after inflation, which Pantera Capital indicated that it is “at a negative 5.52%, a minimum of 50 years.”
Capital Panther said:
“The Fed’s manipulation of the US mortgage and Treasury bond market is so extreme that it is now overvalued by $15 TRILLION (relative to the 50-year median real rate).”
At the same time that Treasury bond yields have been rising, Bitcoin prices (BTC) and altcoins have fallen steadily, with BTC now down more than 45% since Nov. 10.
Declines in the cryptocurrency market have so far been highly correlated with traditional markets, as Pantera Capital notes.but that could change soon, as “cryptocurrencies tend to be correlated with them for a period of about 70 days, that is, a little over two months, and then they start to break their correlation.”
According to the Pantera report:
“And so we believe that in the next few weeks, cryptocurrencies are going to basically decouple from traditional markets and start trading on their own again.”
The rate hike will be good for Bitcoin
Despite the weakness seen in BTC since talk of raising interest rates began, the situation could improve soon according to Pantera Capital, which warned that “10-year interest rates are going to triple – from 1.34 % to something like 4-5%.”
Based on the well-known saying of “be fearful when others are greedy, and greedy when others are fearful”, this could be the right time to accumulate BTC because its “four-year return is at the low end of its historical range ” according to Dan Morehead, CEO of Pantera Capital, who public the chart below suggesting that Bitcoin “looks cheap” and “doesn’t look overvalued”.
“Once people have a little time to think about this, they’re going to realize that if you look at all the different asset classes, blockchain is the best relative asset class in a rising interest rate environment.” .
When it comes to a timeline for recovery, Morehead suggested the turnaround could come sooner than many expect and be only a matter of “weeks to a couple of months until we’re coming up strong.”
“We are quite bullish on the market, and we think prices are in a relatively cheap place.”
The total cryptocurrency market capitalization currently stands at $1.722 trillion and the dominance ratio of Bitcoin is 41.6%.
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