Bitcoin’s long-term bullish outlook may have received further support from investors’ latest bet on the long-dated Treasury notes.
The Wall Street Journal reported on Wednesday that investors believe that the Federal Reserve will start buying long-term US bonds after its next policy meeting in December. The divided outcome of the November 3 elections left investors thinking that the central bank would need to undertake more responsibilities to support the US economy.
That is because of the rising number of coronavirus infections, coupled with the US Congress’s inability to pass the second stimulus package for months. A hung Senate further ensures that American individuals and businesses will need to wait further to receive economic aid.
Loans from the Future
Minutes from Fed’s November 4-5 policy meeting favored keeping the existing bond-buying programs intact. Nevertheless, it also recognized that circumstances could prompt the central bank to make adjustments.
The US economy is looking at uncertain times ahead because the US Treasury Secretary Steven Mnuchin decided to end some of the Fed’s key emergency lending facilities that were aiding small and medium-sized enterprises and state and local governments.
US 10-year Treasury bond yields. Source: US10Y on TradingView.com
US 10-year Treasury bond yields. Source: US10Y on TradingView.com
That has also left the central bank with fewer options but to buy long-term US Treasury notes, thereby lowering borrowing costs for businesses and individuals. The Fed does not look to increase short-term Treasurys’ purchase because yields on them are already near zero.
Meanwhile, the Fed officials may also want to wait until December 16 to see whether or not the US Congress can pass a stimulus package. A bipartisan proposal of about $908 billion in economic aid awaits approval.
Bitcoin
Growth in the long-term US Treasurys decreases the yield they offer — meaning investors receive less money when their bond expires.
Their towering demand inclines to prompt investors to purchase inflation-resistant assets such as Bitcoin. That explains why a yield below 1 percent on the US 10-year Treasury has coincided with a 400 percent price rally in the Bitcoin market.
Bitcoin has surged more than 160 percent YTD. Source: BTCUSD on TradingView.com
Bitcoin has surged more than 160 percent YTD. Source: BTCUSD on TradingView.com
It is not only because a Treasury offers lesser returns than Bitcoin, but also because the yield it offers may cost much less because of higher fiat inflation later. Bitcoin, with its limited supply-cap of 21 million tokens, protect investors from depreciating fiat currencies.
