Treasury Selloff Could Be Bullish for Bitcoin ETF
The yield on 10-year U.S. Treasuries hit 5% on Friday, a decade high, continuing a sell-off that has been accompanied by a sharp decline in prices since the start of the year.
Investors seeking safe-haven assets amid the conflict between Israel and Hamas cut yields recently, but the bond market has since continued its annual rally, paving the way for Bitcoin (BTC) spot exchange-traded funds (ETFs).
Investors raised yields as the U.S. Federal Reserve and other central banks' policies appeared to cool rates that were red-hot 18 months ago. However, market shocks caused by labor strikes, war and political challenges have kept prices high in various sectors, prompting central banks to temporarily cut rates.
High Treasury yields upset playbook.
The recent Israel-Hamas conflict caused a brief pause in bond sales as investors sought shelter. In October, data from the U.S. Commodity Futures Trading Commission showed record long positions in U.S. Treasuries.
According to Luke Kawa, asset allocation strategist at UBS Asset Management, conventional treasury strategies are being challenged.
“Everybody knows the playbook — you buy the time on the last walk. … That playbook is being challenged.”
But some investors say it's overblown because they enjoy the benefits of coupon payments rather than worrying too much about short-term price movements. Jack McIntyre of Brandywine Global said that while the sell-off may be painful now, investors can reap the rewards if they take a long-term view.
“I think what's happening in the bond market over the next decade is positive. We're definitely going to have income over the next decade. It might be painful now, but if you hold on to it, it's an opportunity.”
The arrival of the Bitcoin ETF may be well overdue.
BlackRock economists and other investment managers predict the Fed will raise rates at most once in 2023. As the bond market continues to suffer, institutions may consider investing client assets in a Bitcoin Spot Exchange Traded Fund (ETF).
Read more: What is Bitcoin? The ultimate guide to Cryptocurrency
The US Securities and Exchange Commission (SEC) has delayed rulings on several ETFs, leading investment managers to speculate that the SEC may approve multiple applications at once. Bloomberg ETF expert Eric Balchunas says there's a 75% chance the SEC will approve more ETFs before the end of the year.
If this happens, short-term investors may prefer Bitcoin over Treasuries in their portfolios. Institutional income legitimizes Bitcoin as a real asset class whose correlation with stock markets is declining, even as Treasury yields continue to rise.
In the year By 2023, Bitcoin will surpass the S&P 500, an index representing 80% of the market capitalization of US public companies. The largest cryptocurrency is up 80%, while the S&P is up 10%.
Read more: Crypto vs. Stocks: Where to invest your money in 2023
The crypto asset outperformed the Bloomberg Global Aggregate Bond index, a measure of passive bond funds, down 3.6% year-to-date. Bitcoin's decoupling from both the stock market and the bond market means it could become a favorite of alternative investment managers in the coming months.
Do you have a sell-off, a Bitcoin ETF reversal, or something else due to a spike in Treasury yields? Please write to us or join the conversation on our Telegram channel. You can also find us on TikTok, Facebook or X (Twitter).
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