Even if Intermarket dynamics suggest continuing July’s double-digit increase, Bitcoin (BTC) is now trading cautiously.
The biggest cryptocurrency by market capitalization was trading at $23,300 at the time of publication, down 1.3 percent over the previous 24 hours after failing to maintain gains of over $24,000 over the weekend. The S&P 500 futures market saw a 0.15 percent decrease.
Given that the real, or inflation-adjusted, bond yield in the United States is dropping, what looks to be a retreat in the chart might only last a short time. The 10-year U.S. inflation-indexed bond yield has decreased 46 basis points in only two weeks to 0.20 percent, the lowest level since May 31, reinvigorating the argument for risky asset investments. Historically, the actual yield has gone the same way as bitcoin. At the time of publication, the two’s 90-day correlation coefficient was -90 percent, showing a significant adverse link.
“Since the Fed meeting last week, real yields have been falling across the curve. So here we can see both 5 and 2 Year Real Yields falling back into negative territory, while 10 Year Real Yields are dancing right above 0,” Cameron Dawson, chief investment officer at NewEdge Wealth, said in a Twitter thread, adding that the decline in real rates contributed to the recent rally in growth stocks.
Let's get REAL (a
— Cameron Dawson (@CameronDawson) August 1, 2022)!
Since the Fed meeting last week real yields have been falling across the curve. Here we can see both 5 and 2 Year Real Yields falling back into negative territory, while 10 Year Real Yields are dancing right above 0.
This is important for multiple reasons: pic.twitter.com/KSXCibTj45
A positive real yield indicates that the return on bond investments is greater than market-based inflation measurements—the motivation to keep riskier assets declines as actual return increases and vice versa. Following the coronavirus-caused meltdown in March 2020, real yields fell to zero, causing a historically large bull run in risk assets, including bitcoin. The bull market in cryptocurrencies ended in November 2021 when the yield on a security with a 10-year inflation index hit a trough at -1.17 percent.
The dollar index (DXY), Bitcoin’s main adversary, traded weakly early Monday, providing encouraging signals for the cryptocurrency. However, the DXY was hovering at 105.70, down 0.7%, indicating that the decline from the 20-day high of 109.29 hit on July 14 continues.
The real yield and dollar decline might increase the demand for bitcoin. In addition, a recent poll of fund managers by Bank of America, conducted from July 8 to 15, revealed alarming levels of pessimism and rising cash holdings, which might raise purchasing pressure.
Experts published the market analytics report for Sunday at the cryptocurrency options marketplace Genesis Volatility. They stated that “a lot of pent-up purchasing pressure in risk assets, including crypto.” Moreover, they said, referring to Facebook, Apple, Netflix, and Google, “Stock FANG charts seem like they might burst higher, and crypto could do the same.”
Although it looks like bitcoin is headed upward, the coming week may see a lot of volatility as many manufacturing data points are slated for publication worldwide. In addition, the nonfarm payrolls report, or July jobs data, which describes the employment situation in the second-largest economy in the world, will be released by the U.S. Labor Department on Friday.
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