Bitcoin benefits as yield drops



The US02Y has declined markedly over the last eight trading days from a high of 5.09% to current levels of 3.74%. This has proven to be a tailwind for bitcoin. The cryptocurrency is up over 25% over the last week.

Concerns over the health of the global banking system are a key driver. Credit Suisse's AT1 were vapourised in UBS's takeover of the bank, with $17bn wiped out. In response, capital is seeking the safety of sovereign bonds.

The US 02-year note which is particularly sensitive to monetary policy has declined to 6-month lows as traders bet that the Fed won't hike on 22 March. The CME Fedwatch tool has just 1:1 odds of a 25 bps rate hike. The speculation is that any further rate increases may add to the banking sector woes, dent confidence, and cause economic damage.

Bitcoin benefits in a lower rate environment. Just a few weeks back, and before the failure of SVB, markets had priced in a 5.6% terminal rate. This has been marked down aggressively to 4.75% by May. This repricing is supporting the cryptocurrency.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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