Much has been focused on the performance of stock markets and cryptocurrencies over the past two years as the trillions of dollars that have been printed since the start of the COVID pandemic have reached new all-time highs, but the analysts are increasingly sounding the alarm bells at warning signs coming from the debt market.
Despite interest rates remaining at historic lows, the cracks in the system have grown larger as US Treasury yields “rise dramatically” according to market analyst Dylan LeClair, who job the following chart showing the rise.
“Since November, yields have risen dramatically – bond investors have started to realize that with inflation at 40-year highs, they are sitting in timed contracts to lower purchasing power.”
This development marks a first for U.S. debt markets, as noted in the February letter to investors published by Pantera Capital, which declared “There has never been a time in history with year-over-year inflation at 7.5% and federal funds at ZERO.”
Things get even worse when looking at real rates, or the interest rate a move after inflation, which Panteral Capital says is “at minus 5.52%, a 50-year low.”
Pantera Capital said:
“The Fed’s manipulation of the US Treasury and mortgage bond market is so extreme that it is now overvalued by $15 trillion (relative to the 50-year average real rate).”
Along with rising treasury yields, Bitcoin (BTC) and altcoin prices have steadily fallen, with BTC now down more than 45% since Nov. 10.
Crypto market declines have so far been highly correlated with traditional markets, as noted by Pantera Capital, but that may soon change as “crypto tends to correlate with them for a period of about 70 days, so a little over two months”. , then it begins to break its correlation.
According to the Pantera report,
“And so we believe that over the next few weeks crypto will essentially decouple from traditional markets and start trading on its own again.”
Related: Crypto investors hedge risk ahead of March rate hike
Rising rates will be good for Bitcoin
Despite the weakness seen in BTC since the start of the interest rate hike talks, the situation could soon improve according to Pantera Capital, which warned that “10-year interest rates will triple – from 1 .34% to something like 4%-5%.”
Based on the well-known saying “to be scared when others are greedy and greedy when others are scared,” now could be an opportune time to accumulate BTC as its “four-year yield is at the lowest of its historical range” according to Dan Morehead, CEO of Pantera Capital, who job the following chart suggesting that Bitcoin “looks cheap” and “doesn’t look overvalued”.
“Once people have some time to think about this, they will realize that if you look at all the different asset classes, blockchain is the best relative asset class in a rising rate environment. ”
As for the timing of the recovery, Morehead suggested the turnaround could come sooner than expected and be just a matter of “weeks or a few months until we rally very strongly”.
“We’re quite bullish on the market and we think prices are in a relatively cheap place.”
The overall cryptocurrency market capitalization now stands at $1.722 trillion, and Bitcoin’s dominance rate is 41.6%.
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