What does this mean for Bitcoin and the broader crypto market? In a surprising move that has sent ripples through the financial world, billionaire hedge fund manager Bill Ackman recently announced that he is shorting 30-year Treasury bills. Ackman predicts that yields could soon skyrocket to 5.5%, a move he is positioning as a hedge against the impact of long-term rates on stocks in a world he believes will be characterized by persistent 3% inflation.
“I have been surprised how low US long-term rates have remained in light of structural changes that are likely to lead to higher levels of long-term inflation,” Ackman wrote on Twitter. He cited factors such as de-globalization, higher defense costs, the energy transition, growing entitlements, and the greater bargaining power of workers as potential drivers of this inflation.
Ackman also pointed to the overbought nature of long-term Treasurys and the increasing supply of these securities due to the U.S.’s $32 trillion debt and large deficits. “When you couple new issuance with QT, it is hard to imagine how the market absorbs such a large increase in supply without materially higher rates,” he added. Remarkably, the 30 year yield climbed to 4.28% yesterday.
However, not everyone agrees with Ackman’s perspective. Ram Ahluwalia, CEO of Lumida Wealth, suggested that Ackman’s views might already be priced into the market. “When someone has an idea, especially a hedge fund manager, it’s good mental habit to assume the idea is Consensus,” Ahluwalia wrote on Twitter. He even suggested taking the opposite view, advocating for buying 10-year bonds in the 4.1 to 4.25% range and mortgage bonds at 6.5 to 7%.
Meanwhile, Lisa Abramowicz, a Bloomberg analyst, noted that the U.S. Treasury selloff has been driven by long-dated notes, not those most sensitive to Fed policy. “This suggests two things: traders expect inflation to stay higher for longer and they question whether the Fed is truly going to raise rates high enough to achieve 2% inflation,” she said.
Since the opinions are divergent and, moreover, Bitcoin and bond yields are linked in several ways, there are several potential scenarios.
Scenario 1: Yields Rise Significantly
If Bill Ackman’s prediction comes true and the yield on 30-year Treasury bills rises significantly to around 5.5%, this could have several implications for Bitcoin.
Increased Risk Appetite: Higher bond yields could indicate a greater risk appetite among investors. If investors are willing to accept higher risk for higher returns, they might also be more inclined to invest in Bitcoin, which is often seen as a riskier asset. This could potentially drive up the price of Bitcoin.
Inflation Hedge: If the rise in bond yields is driven by increased inflation expectations, Bitcoin could attract more investment as a potential store of value. Bitcoin, often referred to as ‘digital gold’, has been seen by some investors as a hedge against inflation. If inflation continues to rise and erodes the value of fiat currencies, more investors might turn to Bitcoin, pushing its price higher. However, that’s a narrative that still needs to be proven over time.
Furthermore, it’s important to note that if yields rise too quickly or too high, it could lead to a sell-off in risk assets, including Bitcoin, as investors move to safer assets. This could potentially put downward pressure on Bitcoin’s price.
Scenario 2: Yields Remain Stable Or Fall
If, contrary to Ackman’s prediction, yields remain stable or fall, this could also impact Bitcoin.
Risk Aversion: Lower yields could suggest that investors are moving towards safer assets, which could negatively impact Bitcoin prices. If investors are less willing to take on risk, they might move away from Bitcoin towards safer assets like bonds.
Liquidity Conditions: Bond yields can reflect liquidity conditions in the market. If yields fall, it could suggest that liquidity is high. In such a scenario, there could be more capital available for investment in assets like Bitcoin, potentially supporting its price.
Scenario 3: Market Uncertainty Increases
If market uncertainty increases, for example due to concerns about U.S. fiscal policy or rapid repricing in the bond market, Bitcoin could potentially serve as a hedge.
Hedge Against Uncertainty: In times of market uncertainty, like in the banking crisis in March, some investors might turn to Bitcoin as a potential hedge. If Bitcoin’s perceived status as a ‘digital gold’ or safe haven asset strengthens, this could potentially attract more investment and drive up its price.
However, it’s important to note that Bitcoin’s reaction to market uncertainty can be unpredictable and can depend on a variety of factors, including investor sentiment and broader market conditions.
In conclusion, the potential impact of bond yield movements on Bitcoin’s price is complex and can depend on a variety of factors. Investors should remain vigilant and consider a range of potential scenarios.
Otherwise, Bitcoin and crypto intrinsic factors like the approval of a Bitcoin spot ETF, a Ether futures ETF or any actions by the US Department of Justice (DOJ) against Binance, among others, have the potential to cause an increased volatility.
“I have been surprised how low US long-term rates have remained in light of structural changes that are likely to lead to higher levels of long-term inflation,” Ackman wrote on Twitter. He cited factors such as de-globalization, higher defense costs, the energy transition, growing entitlements, and the greater bargaining power of workers as potential drivers of this inflation.
Ackman also pointed to the overbought nature of long-term Treasurys and the increasing supply of these securities due to the U.S.’s $32 trillion debt and large deficits. “When you couple new issuance with QT, it is hard to imagine how the market absorbs such a large increase in supply without materially higher rates,” he added. Remarkably, the 30 year yield climbed to 4.28% yesterday.
However, not everyone agrees with Ackman’s perspective. Ram Ahluwalia, CEO of Lumida Wealth, suggested that Ackman’s views might already be priced into the market. “When someone has an idea, especially a hedge fund manager, it’s good mental habit to assume the idea is Consensus,” Ahluwalia wrote on Twitter. He even suggested taking the opposite view, advocating for buying 10-year bonds in the 4.1 to 4.25% range and mortgage bonds at 6.5 to 7%.
Meanwhile, Lisa Abramowicz, a Bloomberg analyst, noted that the U.S. Treasury selloff has been driven by long-dated notes, not those most sensitive to Fed policy. “This suggests two things: traders expect inflation to stay higher for longer and they question whether the Fed is truly going to raise rates high enough to achieve 2% inflation,” she said.
Implications For Bitcoin And The Crypto Market?
Since the opinions are divergent and, moreover, Bitcoin and bond yields are linked in several ways, there are several potential scenarios.
Scenario 1: Yields Rise Significantly
If Bill Ackman’s prediction comes true and the yield on 30-year Treasury bills rises significantly to around 5.5%, this could have several implications for Bitcoin.
Increased Risk Appetite: Higher bond yields could indicate a greater risk appetite among investors. If investors are willing to accept higher risk for higher returns, they might also be more inclined to invest in Bitcoin, which is often seen as a riskier asset. This could potentially drive up the price of Bitcoin.
Inflation Hedge: If the rise in bond yields is driven by increased inflation expectations, Bitcoin could attract more investment as a potential store of value. Bitcoin, often referred to as ‘digital gold’, has been seen by some investors as a hedge against inflation. If inflation continues to rise and erodes the value of fiat currencies, more investors might turn to Bitcoin, pushing its price higher. However, that’s a narrative that still needs to be proven over time.
Furthermore, it’s important to note that if yields rise too quickly or too high, it could lead to a sell-off in risk assets, including Bitcoin, as investors move to safer assets. This could potentially put downward pressure on Bitcoin’s price.
Scenario 2: Yields Remain Stable Or Fall
If, contrary to Ackman’s prediction, yields remain stable or fall, this could also impact Bitcoin.
Risk Aversion: Lower yields could suggest that investors are moving towards safer assets, which could negatively impact Bitcoin prices. If investors are less willing to take on risk, they might move away from Bitcoin towards safer assets like bonds.
Liquidity Conditions: Bond yields can reflect liquidity conditions in the market. If yields fall, it could suggest that liquidity is high. In such a scenario, there could be more capital available for investment in assets like Bitcoin, potentially supporting its price.
Scenario 3: Market Uncertainty Increases
If market uncertainty increases, for example due to concerns about U.S. fiscal policy or rapid repricing in the bond market, Bitcoin could potentially serve as a hedge.
Hedge Against Uncertainty: In times of market uncertainty, like in the banking crisis in March, some investors might turn to Bitcoin as a potential hedge. If Bitcoin’s perceived status as a ‘digital gold’ or safe haven asset strengthens, this could potentially attract more investment and drive up its price.
However, it’s important to note that Bitcoin’s reaction to market uncertainty can be unpredictable and can depend on a variety of factors, including investor sentiment and broader market conditions.
In conclusion, the potential impact of bond yield movements on Bitcoin’s price is complex and can depend on a variety of factors. Investors should remain vigilant and consider a range of potential scenarios.
Otherwise, Bitcoin and crypto intrinsic factors like the approval of a Bitcoin spot ETF, a Ether futures ETF or any actions by the US Department of Justice (DOJ) against Binance, among others, have the potential to cause an increased volatility.
