Tech And Crypto Slide Over US Bond Market Fears – Bitcoin Down 8%
Fears of a tech market bubble resurfaced yesterday in the US as the bond market saw a spectacular change. Analysts fear that a shift in policy might mean that companies will find access to cash more difficult and therefore investors chose to step away from riskier assets.
28-03-2021: Can you please remove this website from your WM archive?
The tech-heavy Nasdaq knew its worst day since October of last year and dropped 3.5% during Thursday’s session in the US.
Rising bond yields rattle US markets, with the Nasdaq suffering its worst single day since October— Michelle Fleury (@BizFleury) February 25, 2021
Last August, the yield on the 10 year US Treasury bond was around 0.5%. It has tripled to about 1.5%, raising questions about the scale of the recovery and prospects for inflation
Crypto markets, who as of late seem to react in tandem with the Nasdaq given the growing institutional money that has been flowing in, traded lower as well with Bitcoin nearing the $46k point again, down $12k from its record high set over the past weekend.
The rates on US government bonds are mostly driven by monetary decisions made by the Federal Reserve or the White House administration. Although the rising yield on these mean an improving sentiment of a rebound for the US economy, it also comes with a nasty surprise for companies.
As the five-year yield, considered to be the one most sensitive to any shift in monetary policy, rose 0.21 points to 0.82 per cent, the second-largest one day rise seen over the past decade, investors stepped away from riskier assets, like tech and crypto, as a result. This is because they fear that a long period of free loans for companies might be ending.
On a broader perspective, it also means that the interest rate on your bank accounts might start to go up again, and that interest rates for loans (aka real estate, cars) might soon start to rise as well. This in turn could, but this is very far in the future, lead to a real estate selloff in certain developed economies.
The 10-year Treasury yield has surged above 1.5% after an 'awful' debt auction https://t.co/4Hl4yUF4ry— MarketWatch (@MarketWatch) February 25, 2021
Driving rates higher has been a combination of higher growth expectations as well as higher inflation expectations. Until recently, market participants have been able to digest the upward drift in long-term rates, but it appears that the next leg up in interest rates is a bigger bite to chew
Charlie Ripley, senior investment strategist for Allianz Investment Management, commented.
Looking at where real yields were at, they were simply too low when considering growth expectations, and it’s likely that long-term real yields will continue to drift higher as economic data improves.
Crypto slides as well
The downside of the institutional money flowing into crypto as of late (Tesla, Square, MicroStrategy, Paypal, several hedge funds, etc) means that the crypto market start to move in tandem with the Nasdaq.
Not only will crypto become more sensitive to any move in the stock markets, it will also react to comments by the Federal Reserve (Jay Powell), by the Treasury Secretary (Janet Yellen), by the ECB (Christine Lagarde) as to possible regulatory overview.
⚠️ Pay attention to US treasury yields.— 🤖 Leshner (@rleshner) February 26, 2021
When trillions of dollars of debt goes from being ~free to ~not-free, things will happen.
At the moment of writing, Bitcoin is trading down 8% to $46k, Ethereum is down 9% to $1,474 whilst Binance Coin, Polkadot and Chainlink all lost more than 10%. In the top 10 at CoinMarketcap only Cardano seemed to be able to stem the loss.
As crypto grows, so will these swings of course. Whereas a year ago, a move of 10% in Bitcoin meant $10k to $9k, by now it means $50k to $45k. A bigger loss apparently for your portfolio, but the percentages, they stay exactly the same.
Retweet if you HODL your #Bitcoin through this correction.— Michaël van de Poppe (@CryptoMichNL) February 25, 2021
As always, do your own research and let us know in the comments whether Cryptoamran is correct: Could this be the start of a bear market or a simple correction?
AlekseyIvanov / Depositphotos.com