When investors were fearful of the growing inflation they were looking for an asset to hedge against this madness. They used to buy gold back in the days, but recently they found Bitcoin, which has many advantages compared to metal. So as we know, whenever investors lose confidence in the market they drop bonds driving the US10Y up, but they seem to buy bitcoin instead.
It appears that investors are predicting the market by moving their funds in and out of the big crypto, which might explain the delay between these charts (white arrow). As you may notice, US10Y seems to be a few days behind BTC. Although, these charts are out of sync, they proportional. It looks like for every 3 points movement in Bitcoin, US10Y moves 1 point (See the blue arrows).
When Bitcoin broke below its trendline on May 11th it dropped nearly 33%, while US10Y broke below its trendline on June 8th and dropped around 11%, hence the delay and proportionality.
But considering the death cross and the massive head and shoulder that are about to complete on the BTC chart, Bitcoin may not be done dropping:
So if it drops another 48%, US10Y should also drop but as much as 16%. Although, we are already anticipating a drop in the yield considering the CPI report released on June 10th:
What does it all mean? It means:
Money tunnels out of Bitcoin into Bonds and vice versa
Yields react to the previous point.
Lower Yields should result in the following scenarios: 1-Apes are going to have another run 2-The growth market should gain momentum 3-The speculative stocks should go up.
Please share your thoughts and theories in the comment section below.
Comment
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*Yields react to Bonds and vice versa (nothing new!)
Interesting analysis however, I don't think money tunnels out of bonds and into Bitcoin and vice versa. Some believe Bitcoin is an inflation hedge and so when real yields drop (aka the nominal yields drop) Gold rises and Bitcoin which is acting as a proxy inflation hedge rises too. These are different traders responding to the same data. However, unlike Bonds, Bitcoin is not based on fundamentals and so that is why many traders stay away from it. However the linkage between yields and bonds is tenuous especially if you a decent time frame and use a correlation chart, so I personally wouldn't be trying to link it to the two. But good luck anyway.
Rocco888
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@majicktrader, seems you don't have very clear idea of inflation. if inflation expectation is higher yield goes higher not lower. Now goes lower because probably they expect lower inflation in the future.
Rocco888
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@majicktrader, sorry you are right, with inverse correlation it is easy to misunderstand
majicktrader
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Hi @Rocco888, Hi Rocco my main point is that the two are not linked. In the short term the two may seem so, but this is nothing more than just a coincidence at present. If you check COT positions on bonds and yields you will see that hedge fund traders have very small holdings of Bitcoin and there is not a correlation in shifts between the two types of investments.
My second point is that unfortunately Bitcoin can't be linked to fundamental factors. The whole point of Bitcoin is to be independent of Governments and Central Banks, (The recent 4% rise overnight confirms that it runs on different factors). If Bitcoin was related to fundamentals than it wouldn't be Bitcoin........
Rocco888
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higher inflation doesn't mean higher interest rates?
@Realamh, there is something strange yield lower, M2 higher and dollar higher
Rocco888
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@Realamh, from the fred site seems also that in the first quarter '21 the trade balance account is more negative than the previous period, so I can't understand why the dollar is going up
cantremeber
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prices seem at or near the top across all markets
interest rate hikes may be inevitable
...betting on a stronger dollar
Realamh
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@cantremeber, it should eventually get there in the long-term, but near-term economic data are pointing to lower interest rates and weaker dollar.