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Yearn.finance pleads arb traders to return funds after $1.4M multisig mishap

A Yearn contributor said the value lost came from “strictly protocol owned liquidity” in the protocol’s treasury and that customer funds weren’t impacted.

Decentralized finance protocol Yearn.finance is hoping arbitrage traders will return $1.4 million in funds after a multisignature scripting error, resulting in a large amount of the protocol’s treasury being drained.

“A faulty multisig script caused Yearn's entire treasury balance of 3,794,894 lp-yCRVv2 tokens to be swapped,” according to a Dec. 11 GitHub post by Yearn contributor “dudesahn.”

The error occurred while Yearn was converting its yVault LP-yCurve (lp-yCRVv2) — earned from performance fees on vault harvests — into stablecoins on decentralized exchange CowSwap.

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AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Data highlights Bitcoin’s potential path to $40K amid global economic turbulence

Robust BTC derivatives data indicates strong demand for leverage longs.

Bitcoin (BTC) has been trading within a narrow 4.5% range over the past two weeks, indicating a level of consolidation around the $34,700 mark. 

Despite the stagnant prices, the 24.2% gains since Oct. 7 instill confidence, driven by the impending effects of the 2024 halving and the potential approval of a Bitcoin spot exchange-traded fund (ETF) in the United States.

Investors worry about the bearish global economic outlook

Bears expect further macroeconomic data supporting a global economic contraction as the U.S. Federal Reserve holds their interest rate above 5.25% in order to curb inflation. For instance, on Nov. 6, China exports shrank 6.4% from a year earlier in October. Furthermore, Germany reported October industrial production down 1.4% versus prior month on Nov. 7.

The weaker global economic activity has led to WTI oil prices dipping below $78 for the first time since late July, despite the potential for supply cuts from major oil producers. Remarks by U.S. Federal Reserve Bank of Minneapolis President Neel Kashkari on Nov. 6 has set a bearish tone, prompting a 'flight-to-quality' response.

Kashkari stated:

“ We haven’t completely solved the inflation problem. We still have more work ahead of us to get it done."

Investors have sought refuge in U.S. Treasuries, resulting in the 10-year note yield dropping to 4.55%, its lowest level in six weeks. Curiously, the S&P 500 stock market index has reached 4,383 points, its highest level in nearly seven weeks, defying expectations during a global economic slowdown.

This phenomenon can be attributed to the fact that the firms within the S&P 500 collectively hold $2.6 trillion in cash and equivalents, offering some protection as interest rates remain high. Despite increasing exposure to major tech companies, the stock market provides both scarcity and dividend yield, aligning with investor preferences during times of uncertainty.

Meanwhile, Bitcoin's futures open interest has reached its highest level since April 2022, standing at $16.3 billion. This milestone gains even more significance as the Chicago Mercantile Exchange (CME) solidifies its position as the second-largest market for BTC derivatives.

Healthy demand for Bitcoin options and futures

Recent use of Bitcoin futures and options have made media headlines. The demand for leverage is likely fueled by what investors believe are the two most bullish catalyst for 2024: the potential for a spot BTC ETF and the Bitcoin halving.

One way to gauge market health is by examining the Bitcoin futures premium, which measures the difference between two-month futures contracts and the current spot price. In a robust market, the annualized premium, also known as the basis rate, should typically fall within the 5% to 10% range.

Bitcoin 2-month futures annualized premium (basis). Source: Laevitas.ch

Notice how this indicator has reached its highest level in over a year, at 11%. This indicates a strong demand for Bitcoin futures primarily driven by leveraged long positions. If the opposite were true, with investors heavily betting on Bitcoin's price decline, the premium would have remained at 5% or lower.

Another piece of evidence can be derived from the Bitcoin options markets, comparing the demand between call (buy) and put (sell) options. While this analysis doesn't encompass more intricate strategies, it offers a broad context for understanding investor sentiment.

Related: Bitcoin Ordinals see resurgence from Binance listing

Deribit BTC options put-to-call 24h volume ratio. Source: Laevitas.ch

Over the past week, this indicator has averaged 0.60, reflecting a 40% bias favoring call (buy) options. Interestingly, Bitcoin options open interest has seen a 51% increase over the past 30 days, reaching $15.6 billion, and this growth has also been driven by bullish instruments, as indicated by the put-to-call volume data.

As Bitcoin's price reaches its highest level in 18 months, some degree of skepticism and hedging might be expected. However, the current conditions in the derivatives market reveal healthy growth with no signs of excessive optimism, aligning with the bullish outlook targeting $40,000 and higher prices by year-end.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Bitcoin’s inflation-hedge theory tested as rising interest rates bring turbulence to markets

The losses on US Treasuries recently surpassed $1.5 trillion and the likely outcome is turbulent markets, but how will Bitcoin price fare?

The U.S. economy has been facing turbulent times lately, with the U.S. personal consumption expenditure (PCE) inflation index rising by a significant 3.5% over the past 12 months. Even when excluding the volatile food and energy sectors, it's evident that the efforts made by the U.S. Federal Reserve to curb inflation have fallen short of their 2% target rate.

U.S. Treasuries have lost a staggering $1.5 trillion in value, primarily due to these rate hikes. This has led investors to question whether Bitcoin (BTC) and risk-on assets, including the stock market, will succumb to heightened interest rates and a monetary policy aimed at cooling economic growth.

Theoretical losses of U.S. Treasury holders, USD. Source: @JoeConsorti

As the U.S. Treasury keeps flooding the market with debt, there's a real risk that rates could climb even higher, exacerbating the losses to fixed-income investors. An additional $8 trillion in government debt is expected to mature in the next 12 months, further contributing to financial instability.

As Daniel Porto, the head of Deaglo London, pointed out in remarks to Reuters:

"(The Fed) is going to play a game where inflation is going to lead, but the real question is can we sustain this course without doing a lot of damage?"

Porto's comments resonate with a growing concern in financial circles—a fear that the central bank might tighten its policies to the point where it causes severe disruptions in the financial system.

High interest rates eventually have devastating consequences

One of the primary drivers behind the recent turmoil in financial markets is the rise in interest rates. As rates increase, the prices of existing bonds fall, a phenomenon known as interest rate risk or duration. This risk isn't limited to specific groups; it affects countries, banks, companies, individuals and anyone holding fixed-income instruments.

The Dow Jones Industrial Index has experienced a 6.6% drop in September alone. Additionally, the yield on the U.S. 10-year bonds climbed to 4.7% on Sept. 28, marking its highest level since August 2007. This surge in yields demonstrates that investors are becoming increasingly hesitant to take the risk of holding long-term bonds, even those issued by the government itself.

Banks, which typically borrow short-term instruments and lend for the long-term, are especially vulnerable in this environment. They rely on deposits and often hold Treasuries as reserve assets.

When Treasuries lose value, banks may find themselves short of the necessary funds to meet withdrawal requests. This compels them to sell U.S. Treasuries and other assets, pushing them dangerously close to insolvency and requiring rescue by institutions like the FDIC or larger banks. The collapse of Silicon Valley Bank (SVB), First Republic Bank, and Signature Bank serves as a warning of the financial system instability.

Federal Reserve shadow intervention could near exhaustion

While emergency mechanisms such as the Federal Reserve's BTFP emergency loan program can provide some relief by allowing banks to post impaired Treasuries as collateral, these measures do not make the losses magically disappear.

Banks are increasingly offloading their holdings to private credit and hedge funds, flooding these sectors with rate-sensitive assets. This trend is poised to worsen if the debt ceiling is increased to avoid a government shutdown, further raising yields and amplifying losses in the fixed-income markets.

As long as interest rates remain high, the risk of financial instability grows, prompting the Federal Reserve to support the financial system using emergency credit lines. That is highly beneficial for scarce assets like Bitcoin, given the increasing inflation and the worsening profile of the Federal Reserve's balance sheet as measured by the $1.5 trillion paper losses in U.S Treasuries.

Timing this event is almost impossible, let alone what would happen if larger banks consolidate the financial system or if the Federal Reserve effectively guarantees liquidity for troubled financial institutions. Still, there’s hardly a scenario where one would be pessimistic with Bitcoin under those circumstances.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Bitcoin price holds steady as S&P 500 plunges to 110-day low

The S&P 500 dropped to a 110-day low as the market digests what “higher for longer” means for stocks. Will Bitcoin begin to chart its own path?

On Sept. 20, the Federal Reserve delivered a message that reverberated through financial markets: interest rates are expected to remain at their highest level in over two decades, and possibly for longer than most market participants’ expectations. This attitude comes against the backdrop of stubbornly high inflation, with the core inflation rate hovering at 4.2%, well above the central bank's 2% target, and unemployment at record lows. 

As investors grapple with this new reality, a pressing question arises: Will the S&P 500 and Bitcoin (BTC) continue to underperform in the face of a tighter monetary policy?

The impact of the Fed's decision was swift and severe. The S&P 500 plunged to its lowest level in 110 days, signaling growing unease among investors.

S&P 500 index (blue, right) vs. U.S. 10-year Treasury yield (orange, left)

Notably, the 10-year Treasury yield surged to levels not seen since October 2007. This movement reflects the market's belief that rates will continue to climb, or, at the very least, that inflation will eventually catch up with the current 4.55% yield. In either case, anxiety is mounting over the Fed's ability to sustain these elevated interest rates without destabilizing the economy.

Bitcoin does not necessarily follow traditional markets

One intriguing development amidst this financial turbulence is the apparent disconnect between the S&P 500 and cryptocurrencies, particularly Bitcoin. Over the past five months, the 30-day correlation between the two assets presented no clear trend.

30-day rolling correlation: S&P 500 futures vs. Bitcoin/USD. Source: TradingView

Such divergence suggests that either Bitcoin has anticipated the stock market correction, or external factors are at play. One plausible explanation for this decoupling is the hype surrounding the possible introduction of a spot Bitcoin ETF and regulatory concerns that have hindered the upside potential of cryptocurrencies. Meanwhile, the S&P 500 has benefited from robust 2nd-quarter earnings reports, though it's essential to remember that those numbers reflect the situation from 3 months prior.

As the Fed holds firm on its commitment to high-interest rates, the financial landscape is entering uncharted territory. While some may interpret the central bank's stance as necessary to combat inflationary pressures, others worry that keeping rates elevated could burden families and businesses, particularly as existing loans come due and must be refinanced at significantly higher rates.

A decoupling could favor Bitcoin price

Several factors could lead to the decoupling of cryptocurrencies from traditional markets, such as the S&P 500. If the government encounters difficulties in issuing longer-term debt, it can raise concerns. The failure to issue long-term bonds may indicate fiscal instability, which incentivizes investors to seek hedges against potential economic downturns. In such cases, alternative assets like gold and Bitcoin might become attractive options.

Related: Will Bitcoin price hold $26K ahead of monthly $3B BTC options expiry?

Even with a strong dollar, inflation can force the U.S Treasury to raise the debt limit which leads to currency devaluation over time. This risk remains relevant as investors seek to safeguard their wealth in assets less susceptible to inflation.

Furthermore, the state of the housing market plays a pivotal role. Should the housing market continue to deteriorate, it could negatively impact the broader economy and the S&P 500. The housing market's interconnectedness with the banking sector and the potential for consumer credit deterioration could trigger a flight to assets with scarcity and hedging capabilities.

There's also the potential for political instability, globally or even during the U.S. elections in 2024. This could introduce uncertainty and impact financial markets. In some countries there is a growing fear of capital controls and historical instances of international financial embargoes highlight the risk of governments imposing such controls, further driving investors towards cryptocurrencies.

Ultimately, unlike traditional stocks and bonds, cryptocurrencies are not tethered to corporate earnings, growth or yield above inflation. Instead, they march to their own drumbeat, influenced by factors like regulatory changes, resilience to attacks, and predictable monetary policy. Thus, Bitcoin could vastly outperform the S&P 500 without the need of any of the scenarios discussed above.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Do Bitcoin halvings spark BTC price rallies, or is it US Treasurys?

An intriguing chart shows a close relationship between U.S. 10-year Treasurys and Bitcoin halving price rallies.

The relationship between Bitcoin’s price and U.S. Treasury yields has long been considered a strong indicator due to historical data and the underlying rationale.

Bitcoin halvings vs. 10-year Treasury yields

In essence, when investors turn to government-issued bonds for safety, assets like Bitcoin (BTC), which are considered risk-on, tend to perform poorly.

A noteworthy chart shared by TXMC on X (formerly known as Twitter) makes the argument that Bitcoin halvings have coincided with “relative local lows” in the 10-year Treasury yield. Despite the questionable use of the term “relative,” which doesn’t precisely match a three-month low, it’s still worth examining the macroeconomic trends surrounding past halvings.

First and foremost, it’s important to emphasize that the author asserts that the correlation should not be taken as a “direct causal link between yields and BTC price.” Furthermore, TMXC argues that over 92% of Bitcoin’s supply has already been issued, suggesting that daily issuance is unlikely to be the factor “propping up the asset’s price.”

Could the 10-year yield chart be useful vs. Bitcoin?

First, it’s essential to recognize that human perception is naturally inclined to spot correlations and trends, whether real or imaginary.

For instance, during Bitcoin’s first halving, the 10-year yield had been steadily rising for four months, making it challenging to label that date as a pivotal moment for the metric.

U.S. government bonds 10-year yield, 2012. Source: TradingView

One might give some benefit of the doubt since, in fact, leading up to Nov. 28, 2012, yields dipped below 1.60%, a level not seen in the previous three months. Essentially, after the first Bitcoin halving, fixed-income investors chose to reverse the trend by selling off Treasurys, thereby pushing yields higher.

However, the most intriguing aspect emerges around Bitcoin’s third halving in May 2020, in terms of the “relative” bottom of yields. Yields plunged below 0.8% approximately 45 days before the event and remained at that level for more than four months.

U.S. government bonds 10-year yield, 2020. Source: TradingView

It’s challenging to argue that the 10-year yield hit its lowest point near the third halving, especially when Bitcoin’s price only gained 20% in the ensuing four months. By comparison, the second halving in July 2016 was followed by a mere 10% gain over four months.

Consequently, attempting to attribute Bitcoin’s bull run to a specific event with an undefined end date lacks statistical merit.

Related: Bitcoin price at risk? US Dollar Index confirms bullish ‘golden cross’

Therefore, even if one concedes the idea of “relative” local lows on the 10-year yield chart, there’s no compelling evidence that Bitcoin’s halving date directly impacted its price, at least in the subsequent four months.

While these findings don’t align with TMXC’s hypothesis, they raise an interesting question about the macroeconomic factors at play during actual Bitcoin price rallies.

No Bitcoin rally is the same, regardless of the halving

Between Oct. 5, 2020 and Jan. 5, 2021, Bitcoin saw a remarkable 247% increase in its value. This rally occurred five months after the halving, prompting us to question what notable events surrounded that period.

For instance, during that time, the Russell 2000 Small-Capitalization index outperformed S&P 500 companies by a significant margin, with a 14.5% difference in performance.

Russell 2000 small-cap index relative to the S&P 500 (blue, right) vs. Bitcoin/USD (orange, left). Source: TradingView

This data suggests that investors were seeking higher-risk profiles, given that the median market capitalization of Russell 2000 companies stood at $1.25 billion, significantly lower than the S&P 500's $77.2 billion.

Consequently, whatever drove this movement, it appears to have been associated with a momentum toward riskier assets rather than any trends in Treasury yields four months prior.

In conclusion, charts can be misleading when analyzing extended time periods. Linking Bitcoin’s rally to a solitary event lacks statistical rigor when the upswing generally initiates three or four months after the said event.

This underscores the need for a more nuanced understanding of the cryptocurrency market, one that acknowledges the multifaceted factors influencing Bitcoin’s price dynamics rather than relying solely on simplistic correlations or isolated data points.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Bitcoin price at risk? US Dollar Index confirms bullish ‘golden cross’

Concerns over the U.S. dollar’s impact on Bitcoin may be overstated by investors, particularly in the longer term.

The Dollar Strength Index (DXY) achieved its highest level in nearly 10 months on Sept. 22, indicating growing confidence in the United States dollar compared to other fiat currencies like the British pound, euro, Japanese yen and Swiss franc.

DXY “golden cross” confirmed

Moreover, investors are concerned that this surge in demand for the U.S. dollar might pose challenges for Bitcoin (BTC) and cryptocurrencies, although these concerns are not necessarily interconnected.

U.S. Dollar Index (DXY). Source: TradingView

The DXY confirmed a golden cross pattern when the 50-day moving average surpassed the longer 200-day moving average, a signal often seen as a precursor to a bull market by technical analysts.

Impacts of the recession and inflation risks

Despite some investors believing that historical trends are determined solely by price patterns, it’s important to note that in September, the U.S. dollar exhibited strength, even in the face of concerns about inflation and economic growth in the world’s largest economy.

Market expectations for U.S. gross domestic product growth in 2024 hover at 1.3%, which is lower than the 2.4% average rate over the preceding four years. This slowdown is attributed to factors such as tighter monetary policy, rising interest rates and diminishing fiscal stimulus.

However, not every increase in the DXY reflects heightened confidence in the economic policies of the U.S. Federal Reserve. For example, if investors opt to sell U.S. Treasurys and hold onto cash, it suggests a looming recession or a significant uptick in inflation as the most likely scenarios.

When the current inflation rate is 3.7% and on an upward trajectory, there’s little incentive to secure a 4.4% yield, prompting investors to demand a 4.62% annual return on five-year U.S. Treasurys as of Sept. 19, marking the highest level in 12 years.

U.S. 5-year Treasury yield. Source: TradingView

This data unequivocally demonstrates that investors are avoiding government bonds in favor of the security of cash positions. This may seem counterintuitive initially, but it aligns with the strategy of waiting for a more favorable entry point.

Investors anticipate that the Fed will continue raising interest rates, allowing them to capture higher yields in the future.

If investors lack confidence in the Fed’s ability to curb inflation without causing significant economic harm, a direct link between a stronger DXY and reduced demand for Bitcoin may not exist. On one hand, there is indeed a decreased appetite for risk-on assets, evident from the S&P 500’s negative performance of 4.3% in September. However, investors recognize that hoarding cash, even in money market funds, does not ensure stable purchasing power.

More money in circulation is positive for Bitcoin’s price

As the government continues to raise the debt ceiling, investors face dilution, rendering nominal returns less significant due to the increased money supply. This explains why scarce assets, such as Bitcoin, and some leading tech companies may perform well even during an economic slowdown.

Related: How much is Bitcoin worth today?

If the S&P 500 continues its downtrend, then investors might exit risk markets regardless of their scarcity or growth potential, at least initially. In such an environment, Bitcoin could indeed face negative performance.

However, it’s important to note that this analysis overlooks the fact that the same pressures from inflation and recession will likely increase the money supply, either through additional Treasury debt issuance or the Feds bond purchases in exchange for U.S. dollars.

Either way, increased liquidity in the markets tends to favor Bitcoin since investors may seek refuge in alternative assets to protect against “stagflation” — a situation marked by stagnant economic growth alongside rampant inflation.

Therefore, the DXY golden cross may not necessarily be a net negative for Bitcoin, particularly on longer timeframes.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Bitcoin investors are bullish on the US Fed’s $100B loss

The debt ceiling is unlikely to hold as the government faces increased pressure from interest rate payments, a potential catalyst for Bitcoin and cryptocurrencies.

The U.S. Federal Reserve made a significant announcement on Sept. 14, revealing accumulated losses of $100 billion in 2023. What’s more, this situation is expected to worsen for the Fed, according to Reuters. But for risk assets like Bitcoin (BTC), this may actually be a blessing in disguise. 

The Fed in the red

The primary reason behind this financial setback is that the interest payments on the Fed’s debt have surpassed the earnings generated from its holdings and the services it provides to the financial sector.

As a result of this development, investors are now scrambling to grasp how this will impact interest rates and the demand for provably scarce assets like BTC.

Fed earnings remittances due to the U.S. Treasury, USD (millions). Source: St. Louis Fed

Some analysts are of the opinion that the Fed’s losses, which commenced a year ago, could potentially double by 2024. The central bank categorizes these negative results as “deferred assets,” arguing that there’s no immediate necessity to cover them.

The Fed used to generate revenue for U.S. Treasury

Historically, the Federal Reserve has been a profitable institution. However, the absence of profits does not hinder the central bank’s ability to conduct monetary policy and achieve its objectives. 

Related: How do the Fed’s interest rates impact the crypto market?

The fact that the Fed’s balance sheet has incurred losses isn’t surprising, especially given the substantial interest rate hikes, which escalated from near-zero in March 2022 to the current level of 5.25%. Even if interest rates remain unchanged, Reuters suggested that the Fed’s losses are likely to persist for some time. This can be attributed to the expansionary measures implemented in 2020 and 2021 when the central bank aggressively acquired bonds to stave off a recession.

Even if interest rates remain unchanged, Reuters suggested that the Fed’s losses are likely to persist for some time. This can be attributed to the expansionary measures implemented in 2020 and 2021 when the central bank aggressively acquired bonds to stave off a recession.

In essence, the Fed functions like a conventional bank, as it must provide yields to its depositors, which primarily consist of banks, money managers and financial institutions.

An article in Barron's effectively illustrates the impact of the $100 billion loss, stating,

“The Fed banks’ losses don’t increase federal budget deficits. But the now-vanished big profits that they used to send the Treasury did help hold down the deficit, which is $1.6 trillion so far this fiscal year..”
U.S. total gross debt and debt ceiling, USD (trillions). Source: BBC

Clearly, this situation is unsustainable, particularly considering that the U.S. debt has now reached $33 trillion. While one might point fingers at the Fed for raising interest rates initially, it’s essential to recognize that without such measures, inflation would not have returned to 3.2%, and the cost of living would have continued to exert pressure on the economy. 

Ultimately, the significant demand for short-term bonds and money market funds is a reflection of the trillions of dollars injected into the economy during the peak of the pandemic. Nevertheless, even if one settles for a fixed 5% yield on a three-month investment, there’s no guarantee that inflation will remain below this threshold for an extended period.

Furthermore, investors are confronted with the risk of dilution each time the U.S. Federal Reserve injects liquidity into the market, whether through the sale of assets from its balance sheet or when the Treasury raises the debt limit.

Ultimately, it’s improbable that fixed-income returns will outpace inflation for another 12 months because, at some point, the government will exhaust its funds and be compelled to issue additional Treasurys.

Real estate and stocks no longer a reliable store of value

There remains a significant unanswered question regarding which sector or asset class will reap the most benefits when inflation catches up with short-term Treasury yields. This uncertainty arises as the S&P 500 stands just 7% below its all-time high, while the real estate market exhibits signs of strain due to mortgage rates hitting their highest levels in over two decades.

On one hand, the S&P 500 index doesn’t appear excessively valued, trading at 20x estimated earnings — especially when compared with previous peaks that reached 30x multiples or even higher. However, investors are apprehensive that the Fed may find itself compelled to further raise interest rates in order to combat the prevailing inflationary pressures.

As the cost of capital continues its ascent, corporate earnings will come under pressure, leaving investors with no secure harbor for their cash reserves.

Presently, Bitcoin and other cryptocurrencies may not seem like a viable hedge option, but this perspective could shift as investors realize that the U.S. government’s debt ceiling is essentially boundless. Thus, it might make sense to gradually accumulate these assets regardless of short-term price trends.

Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Buffett and Ackman take opposing sides on Treasury yields — What does it mean for Bitcoin?

Two investment moguls are betting on different directions for inflation and Treasury yields, with potentially negative impacts on Bitcoin.

Warren Buffett and Bill Ackman are two of the most successful investors in the world, but they have taken opposing views on the bond market in recent months.

Buffett has been buying short-term Treasury bills, while Ackman has been shorting long-term Treasury bonds. Could both of these investors be right?

Buffett is the chairman and CEO of Berkshire Hathaway, one of the world’s largest investment holding companies. Buffett’s worth is estimated to be over $100 billion. Ackman is an American hedge fund manager, activist investor and the founder and CEO of Pershing Square Capital Management, a hedge fund with over $20 billion in assets under management.

U.S. Treasury 1-year yield vs. 20-year yield. Source: TradingView and Cointelegraph

There is the possibility that short-term and long-term interest rates will move in different directions. For example, if the Federal Reserve raises short-term rates in an effort to combat inflation, long-term rates could fall. This would be good for Buffett, who is buying short-term bonds, but bad for Ackman, who is shorting long-term bonds.

Another possibility is that Buffett and Ackman are simply taking different views on the risk of inflation. Buffett believes that inflation is not a major threat and that short-term Treasury bills offer a safe haven from market volatility. Ackman, on the other hand, believes that inflation is a serious risk and that long-term Treasury bonds are overvalued.

Buffett and Ackman will both probably get what they want

There is a possibility that Buffett and Ackman are both right, at least in the short term, meaning it is possible that both short-term rates and long-term rates rise. This would happen if the Federal Reserve raises interest rates in an effort to combat inflation but the market does not believe that the Fed will be able to raise rates enough to significantly slow down inflation.

In this scenario, Buffett would benefit from his short-term Treasury bill investment, while Ackman would benefit from his short position on long-term Treasury bonds. This possibility is supported by the fact that the correlation between bond and stock prices has neared a record high in recent months.

S&P 500 correlation to the U.S. 10-year Treasury yield (50 days). Source: TradingView

This means that as bond prices fall, stock prices are likely to rise, likely because investors are selling bonds and buying stocks in anticipation of higher interest rates.

When geniuses fail — Could both investors be wrong?

Of course, it is also possible that both Buffett and Ackman will be wrong. That is, it is possible that short-term and long-term rates will move in the same direction. This would happen if the market believes that the Fed will be able to raise rates enough to significantly slow down inflation. In this scenario, both Buffett and Ackman would likely lose money on their respective investments.

Only time will tell how this debate will play out, and there is no easy answer to the question of who is right. Investors should consider the different investment strategies that Buffett and Ackman use. Buffett is a value investor, while Ackman is a short-seller. These different strategies could also have a significant impact on the performance of their respective investments.

What about the impact on crypto markets?

The U.S. Treasury curve, specifically the spread between the one-year and 20-year note, has significant implications for the broader financial ecosystem, which can indirectly influence the sentiment of Bitcoin (BTC) investors.

A steepening curve, where long-term rates rise faster than short-term rates, often signals expectations of future economic growth and the possibility of rising inflation. In this environment — if both Buffett and Ackman are wrong — Bitcoin could be touted as a hedge against inflation, boosting its attractiveness.

For Bitcoin investors, a flattening curve — meaning both Buffett and Ackman are right — indicates concerns about future economic growth and increased uncertainty and volatility in traditional markets. This would push investors to reduce exposure to cryptocurrencies given that most consider it a speculative asset.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

AI-Focused Altcoin Rallies After Coinbase Places Crypto Project on Listing Roadmap

Where’s the recession? These 3 economic indicators can alert investors to a market downturn

Analysts have called for a U.S. recession all year, but stocks continue to creep higher. Here are three metrics investors can watch to know if an economic downturn is coming.

Inflation came down a lot faster than most investors and analysts anticipated, reaching 3% in June. The recession that most analysts predicted is nowhere to be seen, according to the 3.6% unemployment rate nearing a 50-year low and the S&P 500 Index showing a 19% gain year-to-date.

While the current market performance may lead investors to believe that a recession has been avoided, there are three metrics that have been able to consistently predict recessions over time. These leading economic indicators are key economic variables that tend to move ahead of changes in overall economic activity, providing an early warning system for changes in the business cycle. Let’s dig into three of these indicators and explain how investors can interpret them.

Yield curve inversion

The yield curve represents the relationship between short-term and long-term interest rates on government bonds. Normally, long-term bonds have higher yields than short-term bonds to compensate investors for the risk of holding their money for a more extended period.

Historically, an inverted yield curve has often preceded recessions. This indicator suggests that investors are worried about the near future and expect interest rates to fall due to a potential economic slowdown.

U.S. 10-year yield spread vs. 2-year. Source: TradingView

The two-year Treasury yield is currently 3.25%, while the 10-year Treasury yield is 2.95%, typical of periods ahead of a recession. However, that has been the case since September 2022, and historically there’s a nine- to 24-month lag before the economic contraction takes place.

Leading economic indicators (LEI)

The Conference Board, a nonprofit research organization, compiles a set of economic indicators known as the leading economic indicators (LEI). These indicators include a variety of data points, such as building permits, stock prices, consumer expectations, average weekly hours worked and more.

U.S. consumer confidence index. Source: The Conference Board

When these indicators start to decline or show a pattern of negative movement, it can signal an impending recession. The consumer confidence index for July hit a reading of 117, the highest level in two years. Moreover, according to The Conference Board, the probability of a recession in the next six months is 25%, down from 30% in June.

Purchasing managers’ index (PMI)

The purchasing managers’ index (PMI) is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. A PMI of more than 50 represents an expansion, while readings under 50 represent a contraction. The PMI is seen as a very reliable tool, as it provides timely and accurate data on the manufacturing sector.

The S&P Global U.S. Manufacturing PMI fell to 46.0 in July 2023, down from 46.9 in June and 48.4 in May. This is the lowest reading since December 2022, and it indicates that the manufacturing sector is in a state of contraction. In short, the global economy is slowing down, and this is having a negative impact on demand for exports from the United States.

The Federal Reserve is in a tight spot

The U.S. economy is currently presenting mixed signals. Despite a robust consumer demand underpinned by rising wages and low unemployment, industrial growth indicators have remained weak throughout 2023. Moreover, bond markets suggest market reluctance to add risk-on positions.

This hesitancy is due to the Federal Reserve’s anticipated monetary policy tightening and further expected interest rate hikes for 2023. These different signals show the tricky situation for those in charge of the interest rates.

If the Fed tightens policy too much, it could slow down the economy too quickly, possibly leading to a recession. On the other hand, if the Fed is too lenient, it could trigger high inflation, which erodes purchasing power and can destabilize the currency.

Related: Bitcoin price is down, but data signals that $30K and above is the path of least resistance

For cryptocurrency investors, there’s an additional variable that further complicates the analysis. Despite the long-term high correlation between Bitcoin (BTC) and the stock market, the past eight months have displayed periods of inverse trend, meaning the assets moved in distinct directions.

S&P 500 futures 50-day correlation vs. Bitcoin/USD index. Source: TradingView

Amid crypto market uncertainty, the Fed’s decisions are key to revealing economic confidence. Increasing interest rates signifies stability, potentially benefiting cryptocurrency markets in the short term, whereas rate cuts may indicate economic concerns, possibly affecting risk-on markets in general. Therefore, tracking the Fed provides timely investor guidance in uncertain economic times.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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US Treasury yields are rising — What does it mean for Bitcoin price?

The 5-year U.S. Treasury yield reached its highest level in 3 months, but the typical inverse correlation-based price action with Bitcoin might not work this time.

United States Government bonds, or Treasurys, have a tremendous influence across all tradeable markets, including Bitcoin (BTC) and Ether (ETH). In that sense, risk calculation in finance is relative, so every loan, mortgage and even cryptocurrency derivatives depend on the cost of capital attributed to U.S. dollars.

Assuming the worst-case scenario of the U.S. government eventually defaulting on its own debt, what happens to the families, businesses and countries holding those bonds? The lack of interest debt payments would likely cause a global shortage of U.S. dollars, triggering a cascading effect.

But, even if that scenario comes to fruition, history shows us that cryptocurrencies may work as a hedge during periods of uncertainty. For instance, Bitcoin vastly outperformed traditional wealth preservation assets during the U.S.-China trade war in May 2021. Bitcoin gained 47% between May 5 and May 31, 2021, while the Nasdaq Composite shed 8.7%.

As the general public owns over $29 trillion in the U.S. Treasury, they are deemed the lowest risk in existence. Still, the price for each of those government bonds, or the yield traded, will vary depending on the contract maturity. Assuming there’s no counterparty risk for this asset class, the single most important pricing factor is the inflation expectation.

Let’s explore whether Bitcoin’s and Ether’s price will be impacted by the growing demand for U.S. Treasurys.

Higher demand for government bonds leads to lower yields

If one believes that inflation will not be restrained anytime soon, this investor is likely to seek a higher yield when trading the Treasury. On the other hand, if the U.S. government is actively devaluing its currency or there's an expectation for additional inflation, investors will tend to seek refuge in US Treasurys, causing a lower yield.

U.S. 5-year government bond yield. Source: TradingView

Notice how the 5-year Treasury yield reached 4.05% on June 22, the highest level in more than three months. This movement happened while the U.S. Consumer Price Index (CPI) for May came in at 4.0% on a year-over-year basis, the lowest growth since March 2021.

A 4.05% yield indicates that investors are not expecting inflation to drop below the central bank's 2% target anytime soon, but it also shows confidence that the 9.1% peak CPI data from June 2022 is behind us. However, that’s not how Treasury pricing works because investors are willing to forego rewards in exchange for the security of owning the lowest-risk asset.

U.S. Treasury yields are a great tool for comparing other countries and corporate debt, but not in absolute terms. These government bonds will reflect inflation expectations, but they may be severely constrained if a global recession becomes more likely.

U.S. 5-year government bond yield vs. Bitcoin/USD (orange). Source: TradingView

The typical inverse correlation between Bitcoin and the U.S. Treasury yield has been invalidated in the past 10 days, most likely because investors are desperately buying government bonds for their safety regardless of the yield being lower than inflation expectations.

The S&P 500 index, which measures the U.S. stock market, hit 4,430 on June 16, just 7.6% below its all-time high, which also explains the higher yields. While investors typically seek scarce and inflation protected assets ahead of turbulent times, their appetite for excessive equity valuations is limited.

Related: Bitcoin price data suggests bulls will succeed in holding $30K as support this time

Recession risks could have distorted the yield data

The only certain thing at the moment is that investors’ expectations for a recession are becoming more evident. Aside from the Treasury's yield, the U.S. Conference Board's leading indicators declined for 14 consecutive months, as described by Charlie Bilello:

Consequently, those betting that Bitcoin’s recent decoupling from the U.S. Treasury's yield inverse correlation will quickly revert might come out disappointed. Data confirms that government bond yields are higher than normal due to increased expectations of a recession and economic crisis ahead.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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