Bitcoin’s long-term bullish outlook may have received further support from investors’ latest bet on Treasury long notes.
The Wall Street Journal reported Wednesday that investors believe the Federal Reserve will start buying U.S. long-term bonds after its next policy meeting in December. The split result of the Nov. 3 elections left investors thinking that the central bank would need to take on more responsibilities to support the US economy.
That’s because of the increasing number of coronavirus infections, coupled with the inability of the US Congress to pass the second stimulus package for months. A hung Parliament further ensures that American individuals and businesses will need to wait further to receive economic assistance.
Future Loans
The minutes of the November 4-5 Fed policy meeting favored keeping the existing bond purchase programs intact. However, he also acknowledged that circumstances could encourage the central bank to make adjustments.
The US economy is facing uncertain times ahead as US Treasury Secretary Steven Mnuchin decided to end some of the Fed’s key emergency lending facilities that were assisting small and medium-sized businesses and state governments and local.
US 10-year Treasury bond yields. Source: US10Y on TradingView.com
That has also left the central bank with fewer options but buying long-term US Treasury notes, thereby reducing borrowing costs for businesses and individuals. The Fed is not trying to increase Treasury short-term purchases because the yield on them is already nearly zero.
Meanwhile, Fed officials may also want to wait until Dec. 16 to see whether or not the US Congress can pass a stimulus package. A bipartisan proposal of about $ 908 billion in economic aid is awaiting approval.
Bitcoin
Growth in the long-term US Treasury reduces the yield they offer – meaning investors receive less money when their bond expires.
Their tremendous demand tends to encourage investors to buy inflation-resistant assets like Bitcoin. That explains why a yield of under 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
Not only because Treasury offers less earnings than Bitcoin, but also because the product it offers can cost much less due to higher fiat inflation later. Bitcoin, with its limited supply cap of 21 million tokens, protects investors from devaluing fiat currency.