Bitcoin’s decoupling with Gold and its inverse relationship with stocks has been widely addressed by the mainstream media. The missing link is its impact on US Government bonds. Previously considered a non-issue, the negative yields on government bonds have caused analysts and investors on the chain to think about this perspective. Preston Pysh is one of them, recently with Pysh tweets,
“People who say Bitcoin only replaces gold, total misses the big mark.
This is for EVERY one about bonds.
Good luck convincing the people who own 100 trillion in bonds – which generate nothing – to hold on when their future face value and coupons are locked in a fixed fiat value. “
This has shifted the focus from the Bitcoin-Gold debate to bonds. There is plenty talking about a Bitcoin price rally that equates to the Gold Fractures of the 70s or the technology stock boom. There are generals the scarcity of stores of value as investment options and the emergence of Bitcoin as almost inevitable.
While Bitcoin v. Gold begins to look like a repetitive narrative for fund managers and traders, the bond market suffers in a radically different way. Inevitably, negative interest rates and the inverse correlation of the USD with Bitcoin, due to inflation, have given analysts more reason to believe in the S2F models of the cryptocurrency.
Product on TIPS || Source: Bloomberg data
Based on Bloomberg Data on Treasury Inflation Protected Securities yields, the current yield is negative for all securities and municipal bonds face a similar fate. Currency debasement sets the precedent for switching to Bitcoin as the reserve asset in treasures. This explains Michael Saylor’s bold move to replace cash reserves with Bitcoin.
The current crisis that bonds face is the impact of inflation. Due to rising inflation, government bond yields are almost zero, even negative, and this is expected to worsen as inflation rises. Even before a significant rise in inflation, a significant amount of bond yields were negative. So where does the average investor or fund manager go looking for a hedge?
The investor turns to an asset with three-digit YoY returns – Bitcoin. And, that may be Bitcoin’s A-game right now. Looking at the bond market, both Bitcoin and Gold receive a flow of investments from the falling interest in bonds. This critical narrative is one of “Bonds – The hedge that has broken against inflation.”