Wednesday, September 28

Bloomberg Strategist Explains Why US 30-Year Bonds Have ‘Bullish Implications’ For Bitcoin


Despite Bitcoin (BTC) falling back below $ 50,000, more and more investors are likely to move their capital into the Bitcoin and gold markets in the second half of 2021 (H2), Mike McGlone stated on August 23, Senior Commodity Strategist at Bloomberg. Intelligence.

The financial analyst cited the consistently lower yields offered by the 30-year US Treasury bond behind his upside analogy. He noted that if its rate of return persists below 2%, it could enhance the price discovery stage for Bitcoin while presenting a competitive advantage for traditional safe-haven assets like gold.

“Unlike the stock market, the old analog store of value and the new digital version share substantial fixes,” McGlone said. additional, referring to the small reversal in the S&P 500 index in the first half of 2021 (H1) that increases its potential to correct downwards in H2.

In turn, it organizes new capital for other markets with extreme upside potential, such as Bitcoin.

Bitcoin, Gold and US Bond Index vs. S&P 500 Total Return Index Source: Bloomberg Intelligence

“The S&P 500 goes up or down 10% in 2H offers a simple binomial model”, wrote Bloomberg analyst in a research note in July.

“If it goes up, it would be around 3 times the annual norm since 1928 and it would lift the Bloomberg Galaxy Crypto Index above the 1H gain of around 80%. If it goes down, bond yields would probably follow and Bitcoin could be the main one. beneficiary”.

Bitcoin to reach a new record

The Federal Reserve’s unprecedented interference in the bond market after the March 2020 market crash drove rates down. Institutional investors who ideally seek annual yields of 5% from the bond market to curb inflationary pressures are now faced with short-term bonds, some of which offer sub-zero returns.

Meanwhile, longer-term Treasury yields also fell to record lows. That forced investors to look for alternatives in the riskiest parts of the financial markets: higher-yielding debt-free investments like Bitcoin.

“It was the breach of [the 2%] threshold in 2020 that preceded the risk fading and laid the foundation for Bitcoin’s move to new highs this year, “Bloomberg research noted.

Yield of 30-year US Treasuries against the price of Bitcoin. Source: TradingView.com

Tapering and Jackson Hole

McGlone’s remarks on Bitcoin’s bonds and correlation come as Jerome Powell, Chairman of the Federal Reserve, prepares to deliver a speech at the Jackson Hole summit this week, usually one of the most influential economic events.

The Fed’s efforts to cut its $ 120 billion per month bond buying policy are expected to be a dominant theme during the (virtual) Jackson Hole meeting. Investors will watch Powell’s words for clues as to how and when the US central bank would begin its phase-down program.

At their July 27-28 meeting, Fed officials agreed to begin rolling back their bond buying policy due to an optimistic outlook for economic growth and the job market.

However, the 30-year Treasury yield remained lower after the news, with emerging reports that investors were still expecting economic downturns due to the spread of the Covid-19 Delta variant.

“Many clients have not particularly understood how the rate markets have moved, and that has brought a degree of caution that you would not normally see,” said Guneet Dhingra, director of US interest rate strategy at Morgan Stanley. told the Financial Times.

Related: Bitcoin’s Bullish Cross On Weekly Chart Paints $ 225K BTC Price Target If History Repeats

After the Fed’s outlook on August 18, the price of Bitcoin surged more than 14% to hit its three-month high of $ 50,784.

Bitcoin daily price chart. Source: TradingView.com

The BTC / USD exchange rate fell below $ 50,000 on Monday due to profit-taking sentiment. At its lowest level, the pair’s bid was $ 49,369.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.