Another villain in Bitcoin market misery: Treasury Inflation Protected Securities (TIPS)

YEREVAN (CoinChapter.com) – Bitcoin BTC price has lost 70% since topping off at $69,000 in Nov 2021. The ongoing war in Ukraine, aggressive interest rate hikes, and treasury inflation-protected securities (TIPS) resulted in a crypto carnage, and Bitcoin price fell to $20,400 on June 23.

Bitcoin market has not bottomed out yet.

As CoinChapter previously reported, several experts see another 50% drop for the flagship crypto before the end of 2022. Moreover, Bitcoin highly correlated with risk-on assets like equities for the previous months, abandoning the 2020 hopes for sanctuary status.

Should the Fed continue on its announced asset reduction path, I believe the real yield (5-year TIPS) will approach and may surpass 1%, which coupled with the investment-driven price spike unwinding will easily push Bitcoin price well below $10,000.

commented Julian Van Erlach, the author of asset valuation theory dubbed Required Yield Theory (RYT)

Also read: The Bank of Japan (BOJ) tightens grip on bond market as the Yen tanks.

Moreover, a new danger for Bitcoin and the crypto market came from 0,7% Treasury Inflation-Protected Securities yields.

Treasury Inflation-Protected Securities (TIPS) danger for Bitcoin?

Treasury Inflation-Protected Securities, most commonly known as TIPS, are a type of Treasury security issued by the U.S. government. They are indexed to inflation to protect investors from a decline in the purchasing power of their money. In other words, they protect treasury bond investors against inflation.

The yields from the said bonds also referred to as ‘real yields, ‘ reached 0.7% on June 22. Additionally, according to the analytical platform LongTermTrends, TIPS has correlated with gold since its establishment in 2003. The chart below represents three years from 2019 to 2022.

Financial analyst Steven Saville weighed in on the matter, calling the correlation a common belief “actually true.”

One of the few commonly-believed things about gold that is actually true is that gold tends to become more valuable when the real interest rate is trending downward and less valuable when the real interest rate is trending upward.

said Saville.

Also read: Bitcoin risks another massive selloff on recession fears, asserts analyst as BTC wobbles around $20K.

He also asserted that the TIPS is the only way to get an accurate read on the real U.S. interest rate trend. Moreover, the attractive 0.7% real yield, coupled with other hedge assets, presents a better investment than Bitcoin at the moment.

Sanctuary assets take the front seat.

While Bitcoin plunged into a pit, gold hit $2,070 per ounce for an ounce in March, a record high since the Covid-induced market crisis in 2020.

As the leading sanctuary asset, the yellow metal tends to do well in times of economic distress. However, the XAU value fell to $1,830 on June 23, after the Fed implemented the planned interest rate hikes.

Also read: Is Bitcoin Really Dead?

Treasury’s real yields at 0.7%, coupled with gold at $1,830 per ounce, pushed Bitcoin out of investors’ interest zone for the time being. However, the upcoming quarter will show if the crypto market is ready to retaliate.