![Market Jitters: Analysts Warn of Looming US Stock Crash, Draw Parallels to 1929 Market Jitters: Analysts Warn of Looming US Stock Crash, Draw Parallels to 1929](https://static.news.bitcoin.com/wp-content/uploads/2024/06/crasshshhser-768x432.jpg)
The founder of the decentralized finance (DeFi) protocol Curve (CRV) reportedly stared at the prospect of getting liquidated as the altcoin market collapsed during the weekend. According to crypto reporter Colin Wu, Curve founder Michael Egorov faced liquidation in his lending positions after Curve’s native asset dipped to $0.42. “Curve founder Michael Egorov also faced […]
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New data from market intelligence firm Santiment suggests that altcoins may recoup some of their losses from the crypto market’s sharp downturn last week. According to the crypto analytics platform, altcoins are “overwhelmingly showing undervaluation” after last week’s bloodbath, leaving investors divided on how quickly the markets can recover. Using the market value to realized […]
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The 10-year U.S. Treasury yield recently hit its highest level in 12 years, but how might this impact investors’ sentiment toward stocks and cryptocurrencies?
Across all tradeable markets and currencies, U.S. Treasuries — government bonds — have significant influence. In finance, any risk measurement is relative, meaning, if one insures a house, the maximum liability is set in some form of money.
Similarly, if a loan is taken from a bank, the creditor has to calculate the odds of the money not being returned and the risk of the amount being devalued by inflation.
In a worst-case scenario, let’s imagine what would happen to the costs associated with issuing debt if the U.S. government temporarily suspended payments to specific regions or countries. Currently, there is over $7.6 trillion worth of bonds held by foreign entities and multiple banks and governments depend on this cash flow.
The potential cascading effect from countries and financial institutions would immediately impact their ability to settle imports and exports, leading to further carnage in the lending markets because every participant will rush to reduce risk exposure.
There are over $24 trillion in U.S. Treasuries held by the general public, so participants generally assume that the lowest risk in existence is a government-backed debt title.
The yield that is widely covered by the media is not what professional investors trade, because each bond has its own price. However, based on the contract maturity, traders can calculate the equivalent annualized yield, making it easier for the general public to understand the benefit of holding bonds. For example, buying the U.S. 10-year Treasury at 90 entices the owner with an equivalent 4% yield until the contract matures.
If the investor thinks that the inflation will not be contained anytime soon, the tendency is for those participants to demand a higher yield when trading the 10-year bond. On the other hand, if other governments are running the risk of becoming insolvent or hyperinflating their currencies, odds are those investors will seek shelter in U.S. Treasuries.
A delicate balance allows the U.S. government bonds to trade lower than competing assets and even run below the expected inflation. Although inconceivable a few years ago, negative yields became quite common after central banks slashed interest rates to zero to boost their economies in 2020 and 2021.
Investors are paying for the privilege of having the security of government-backed bonds instead of facing the risk from bank deposits. As crazy as it might sound, over $2.5 trillion worth of negative-yield bonds still exist, which does not consider the inflation impact.
To understand how disconnected from reality the U.S. government bond has become, one needs to realize that the 3-year note's yield stands at 4.38%. Meanwhile, consumer inflation is running at 8.3%, so either investors think the Federal Reserve will successfully ease the metric, or they are willing to lose purchasing power in exchange for the lowest risk asset in the world.
In modern history, the U.S. has never defaulted on its debt. In simple terms, the debt ceiling is a self-imposed limit. Thus, the Congress decides how much debt the federal government can issue.
As a comparison, an HSBC Holdings bond maturing in August 2025 is trading at a 5.90% yield. Essentially, one should not interpret the U.S. Treasury yields as a reliable indicator for inflation expectation. Moreover, the fact that it reached the highest level since 2008 holds less significance because data shows investors are willing to sacrifice earnings for the security of owning the lowest risk asset.
Consequently, the U.S. Treasury yields are a great instrument to measure against other countries and corporate debt, but not in absolute terms. Those government bonds will reflect inflation expectations, but could also be severely capped if the generalized risk on other issuers increases.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Traders expect an uptick in volatility due to the possibility of September’s $2.2 billion options expiry putting pressure on BTC price near a critical support level.
This week the $20,000 resistance is proving to be stronger than expected and even after Bitcoin price rejected at this level on Sept. 27, BTC bulls still have reasons to not give up.
According to the 4-month-long descending triangle, as long as the $18,500 support holds, Bitcoin price has until late October to determine whether the downtrend will continue.
Bitcoin bulls might have been disappointed by the lackluster price performance as BTC has failed multiple times to break above $20,000, but macroeconomic events might trigger a rally sooner than expected.
Some analysts point to the United Kingdom's unexpected intervention in the bond market as the breaking point of the government’s debt credibility. On Sept. 28, the Bank of England announced that it would begin the temporary purchase of long-dated bonds to calm investors after a sharp yield increase, the highest since 1957.
To justify the intervention, the Bank of England stated, "were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability." Taking this measure is diametrically opposite to the promise of selling $85 billion in bond holdings within 12 months. In short, the government's credibility is being questioned and as a result investors are demanding much higher returns to hold U.K. debt.
The impact of the government's efforts to curb inflation are beginning to impair corporate revenues and according to Bloomberg, Apple recently backed off plans to increase production on Sept. 27. Amazon, the world's biggest retailer, is also estimated to have shuttered plans to open 42 facilities, as per MWPVL International Inc.
That is why the $2.2 billion Bitcoin (BTC) monthly options expiry on Sept. 30 will put a lot of price pressure on the bulls, even though bears seem slightly better positioned as Bitcoin attempts to hold on to $19,000.
Bitcoin's rally toward the $22,500 resistance on Sept. 12 gave the bulls the signal to expect a continuation of the uptrend. This becomes evident because only 15% of the call (buy) options for Sept. 30 have been placed at $21,000 or lower. This means Bitcoin bears are better positioned for the expiry of the $2.2 billion in monthly options.
A broader view using the 1.49 call-to-put ratio shows a skewed situation with bullish bets (calls) open interest at $1.26 billion versus the $850 million put (sell) options. Nevertheless, as Bitcoin currently stands near $19,000 and bears have a dominant position.
If Bitcoin price remains below $20,000 at 8:00 am UTC on Sept. 30, only $37 million worth of these call (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $20,000 or $21,000 if it trades below that level on expiry.
Below are the four most likely scenarios based on the current price action. The number of options contracts available on Sept. 30 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
Bitcoin bulls need to push the price above $21,000 on Sept. 30 to balance the scales and avoid a potential $350 million loss. However, Bitcoin bulls seem out of luck since the U.S. Federal Reserve chairman called for "crypto activities" regulation on Sept. 27, alerting "very significant structural issues around the lack of transparency."
If bears dominate the September monthly options expiry, that will likely add firepower for further bets on the downside for Bitcoin price. But, at the moment, there is no indication that bulls can turn the tables and avoid the pressure from the 4-month-long descending triangle.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.