Bitcoin prices could explode due to their untapped correlation with US Treasury yields, according to prominent portfolio manager Ari Paul.
The co-founder and CIO of BlockTower Capita pitted the long-term potential of the cryptocurrency against U.S. government bonds as it neared its all-time highs on Monday. Paul noted that declining yields on US treasury bonds are less attractive to investors, making bitcoin an attractive alternative.
“Not a short term market call at all, but it is this dynamic that will eventually set up for a parabolic movement in gold and bitcoin [in my opinion]”The analyst said in a tweet.” Historically, gold has performed better because real rates (nominal – inflation) have fallen the most. “
* Not * a short term market call at all – but it is this dynamic that will eventually set up for a parabolic movement in gold and imc bitcoin. Historically, gold has performed better, with real rates (nominal – inflation) falling the most. https://t.co/BIDhuTnq3n
– Ari Paul ⛓️ (@AriDavidPaul) March 9, 2020
Bitcoin versus benchmark bond yields
When the stock market collapses, investors generally seek the security of gold, bonds and other hedging assets. A traditional argument says that declining yields are good for gold, according to their extremely precise negative correlation since the financial crisis of 2008. Investors choose the yellow metal rather than low-risk bonds each time the central bank lowers its debit rates.
Relationship between gold and the US Treasury at 10 years | Source: FRED
But, at the same time, the picking of gold comes with additional charges. Keeping it in physical form requires storage costs, while in Demat forms like ETFs, charge commissions.
Bitcoin, on the other hand, is cheaper to keep because of its digital form. An investor generally holds it in readily available software portfolios or in physical USB type portfolios. Those who have high trust with third parties also keep their bitcoin units with regulated depositaries.
Bitcoin versus Gold versus Fiat chart
The idea of bitcoin leaping against the decline in yields on US benchmark bonds is based on the fact that cryptocurrency behaves as a better safe haven asset in times of financial crisis.
Haven Hunt
The current global economic situation somewhat provides bitcoin with an opportunity to demonstrate its ability to protect investors. But it is not up to par.
In retrospect, global markets collapsed on Monday amid an escalation in the oil price war between Saudi Arabia and Russia and additional economic fallout from the coronavirus epidemic. Futures linked to the three major US indices, for example, indicated deeper declines, with the Dow Jones Industrial Average indicating a fall of 1,200 points after the morning bell in New York.
The downward trend, overall, has prompted investors to seek the security of low-risk government bonds and gold. Both have reached record highs.
Bitcoin, on the other hand, has plunged massively. Before Monday’s session opened, the cryptocurrency had fallen more than 13%, which has caused many to question its safe haven narrative. Popular gold bull Peter Schiff, for example, ridiculed bitcoin for underperforming against a global stock market crash, saying there is no longer any reason for investors to hold it.
Bitcoin was created after the 2008 financial crisis and hodlers have always assumed it would be the haven of choice next time around. Looks like they got it wrong. Yes #Bitcoin is not a currency, not a store of value, and not a haven of peace, so what is it and why own it?
– Peter Schiff (@PeterSchiff) March 9, 2020
Schiff also added that buying sovereign debt like bonds is as stupid as buying bitcoin. For him, gold preceded all other so-called safe-haven assets.
The price of the yellow metal jumped above $ 1,700 on Monday for the first time in about seven years.
Discussion about this post