BTC and Equities Show Higher Correlations as the Bond Selloff Continues

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In Brief
  • For the past two weeks, the 10-year U.S. Treasury yields have been traded as high as 1.614%, the highest level since Feb. 14, 2020.

  • The rising rates make investors feel nervous that it could be driven by inflation, not economic recovery.

  • Meanwhile, Bitcoin (BTC) could turn into insurance against unhinged monetary policy.

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The chart from skew shows that the correlation between bitcoin (BTC) and equities keeps rising as bonds continue to sell-off.



A recent rise in 10-year U.S. Treasury yields appeared to be among the list of factors helping bitcoin gain in value. While bond investors see this surge as a precursor of inflation the market starts considering BTC as the better value proposition.   



Spike in Bonds Market

In the past two weeks, the 10-year U.S. Treasury yield has risen by 48 basis points compared to 1.13% recorded on Feb. 10. On Feb. 25, it briefly went above 1.6%, which is the highest level in a year.  

Source: CNBC

This impressive surge can be credited to investors being forced to close their bullish positions on Treasury futures. Considering this, the 10-year yield shows the same bearish signs faced by other markets. These are particularly Australian, New Zealand, and European government bonds that have been also weakening for quite a long time.

Inflation Narrative to Gain Momentum

Probably the most worrying factor driving 10-year treasuries is the rate hike that the Federal Reserve is about to carry out for the first time since the pandemic. As many investors fear, the Fed’s attempts to recover the U.S. economy will cause an unprecedented inflation. This, in turn, will result in tightening the monetary policy by either reducing bond purchases or raising rates.

However, the Fed Chairman Jerome Powell insists that “easy monetary policy is likely to stay in place.”

“Overall, on a 12-month basis, inflation remains below our 2% longer-run objective,” he added.

In the meantime, Societe Generale’s strategist Albert Edwards emphisized that ongoing inflation concerns are no accident:

“But the risk is growing that with so many bubbles blown by the Fed something will burst soon.”

BTC to Replace Bonds?

As Bitcoin is becoming a notable focus area for large institutions, the correlation between BTC and equities is growing. In this context, some traders express their anxiety about traditional markets may have a significant impact on BTC price movements. 

The similar situation occurred when the US Treasury Secretary Janet Yellen called on investors to stop using bitcoin when conducting transactions. The price immediately fell below $46,000 on Feb. 23. 

Meanwhile, there is the possibility that the inflation narrative that follows the bonds surge will benefit bitcoin. 

Bitcoin’s gains have been fueled by mainstream investors and companies, from Tesla and MicroStrategy to Square turning to BTC. As a result, the flagship cryptocurrency saw a long-awaited $1 trillion in market capitalization on Feb 19. Moreover, institution-focused platforms like Coinbase Pro have been recording large amounts of BTC being transferred to custody wallets.

That being said, ARK Invest’s Cathie Wood regards Bitcoin as a reserve currency in the future.

“Fixed income has done 40 years of really hard work,” Wood concluded. “If Bitcoin represents a new asset class, why not invest in it?”

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Amy was born in Malmo, Sweden. She became interested in cryptocurrency due to her husband, who was an early investor in bitcoin. Now, Amy writes for a number of crypto outlets, invests in cryptocurrencies, and spends time with her cat Buterin.

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