Bitcoin week ahead Ep17: Time to bring attention to real yields

Bitcoin week ahead Ep17: Time to bring attention to real yields
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Key Bitcoin takeaways:

  • Bitcoin holds above $65,000 following weekend price rebound.
  • Rising inflation expectations and bearish long-term bond yields have stablized investors’ appetite for safe-haven assets.
  • Lower real yields have also contributed to Bitcoin’s demand as a speculative hedge, promising further upsides.
  • Meanwhile, technical outlook anticipates another record high for the flagship cryptocurrency.

NEW DELHI (CoinChapter.com) — Last week was great for Bitcoin (BTC) as it rallied towards another record high, hitting $69,000 for the first time in history before turning lower on profit-taking sentiment. Nonetheless, it closed the week at over 3.5% higher and reclaimed $65,000 as a psychological support level.

Bitcoin meets real yields

The bulk of gains emerged in the days approaching the release of the U.S. consumer price index (CPI) report for October. Published Wednesday, the report highlighted higher inflationary pressures in the U.S. since 1990. Bitcoin’s gains also appeared in the line of further rising expectations of higher consumer prices, which outpaced nominal long-term yields, thus pushing the real yields lower.

Daily Treasury Real Yield Curve Rates. Source: U.S. Treasury
Daily Treasury Real Yield Curve Rates. Source: U.S. Treasury

If the U.S. real yields stay lower, it could create an ideal hotbed for the next Bitcoin bull run in the coming sessions.

Meanwhile, the Federal Reserve expects to unwind its $120 billion a month asset purchasing program later in November to tame inflationary pressures. While the central bank’s decision may assist the real yields in rebounding higher, few analysts see them jumping from negative to above zero.

Related: Bitcoin rally weakens as Fed announces tapering $120B a month stimulus policy

Gargi Chaudhuri, head of iShares investment strategy at Blackrock, a financial giant with a history of trading Bitcoin Futures, noted that rising real yields would have minimal impact on the already-rallying risk-on markets, such as the U.S. stocks.

Meanwhile, Meghan Swiber, rates strategist at Bank of America, said 10-year real yields could stay below zero across the next decade. Analysts at Morgan Stanley shared a similar forecast earlier this year.

The 10-year real yields, also called Treasury Inflation Protects Securities (TIPS), have been negative across 2021. While it rose in the first quarter, a sharp pullback in the next sessions saw it falling to a new low of 1.24% below zero. Nonetheless, the nominal 10-year yield has jumped 65 basis points this year.

What’s happening this week

The turn through mid-November would also see more inflation data from the G10 economies, which may report increases in consumer prices in October. That leaves Bitcoin in a bullish state against foreign currencies like the pound, euro, and the Japanese yen.

Related: US Attempts to Baptize Crypto Amid Historic Consumer Price Inflation

Meanwhile, the cryptocurrency could also react to speeches from various U.S. Federal Reserve and the European Central Bank policymakers that would again attempt to calm down fears surrounding the rising inflation, which may push the real yields further lower.

  • On Tuesday, the U.K. will release its September unemployment rate and the August employment change figures. The U.S. would also publish its retail sales data to show consumer sentiment among rising inflationary pressures.
  • On Wednesday, Bitcoin could show some volatile price moves thanks to a trio of inflation reports coming out of the U.K., the eurozone, and Canada.
  • On Thursday, Japan will also release its inflation data but expects to have a little impact on the Bitcoin market due to yen’s limited influence on cryptos.

BTC technical outlook

Bitcoin broke out of its Bull Pennant structure last week but now awaits confirmation for an extended upside move. Meanwhile, the cryptocurrency stays in an Ascending Flag range, providing traders with a conflicted interim outlook — they have been increasing long exposure near the Flag support and short exposure near the Flag resistance.

BTC/USD daily price chart featuring Bull Pennant setup. Source: TradingView
BTC/USD daily price chart featuring Bull Pennant setup. Source: TradingView

The two chart structures meet at a support confluence just as BTC expects to see a volatile period on Wednesday, The confluence is near $62,000.

Related: Bitcoin consolidating within $58K-$68K — will Taproot unleash BTC bulls?

Meanwhile, a strong retest of the confluence could result in a pullback towards the Flag’s resistance trendline, a new all-time high. A decisive continuation would bring the Pennant’s upside target near $88,000 under consideration.

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