Treasury Yields swell as price risks mount for Bitcoin ahead of FOMC meeting

FOMC meeting
FOMC Meeting Image Source: FederalReserve

New Delhi(CoinChapter): U.S. Treasury yields rose Tuesday with investors keenly observing the Federal Reserve’s policy meeting(FOMC) outcome on Wednesday 26th January and the alarming geopolitical tensions between Russia and Ukraine. While the NASDAQ 100 index is down around 14%, Bitcoin has shed over 20% since the start of the year. Investors are also keeping an eye out for updates on tensions between Ukraine and Russia.

Yield Curve
Image Source: CNBC

The yield on the benchmark 10-year Treasury note was 4.6 basis points higher at 1.781% by around 4:10 p.m. ET. The yield on the 30-year Treasury bond rose 4.1 basis points to 2.126%. As Yields move inversely to prices, the bonds traded below the previous close, on Tuesday.

FOMC meeting to conclude on Wednesday

The Fed’s two-day meeting kicked off Tuesday, with a policy decision and a press conference from Chair Jerome Powell scheduled Wednesday afternoon.

The central bank is not expected to raise interest rates in the January meeting, with many investors expecting the first hike to be announced in March. However, there is a strong expectation of a signal to a continued tightening of monetary policy. Wall Street investors see the central bank end its asset purchases in the next month or two, followed by an outright rundown of the balance sheet to start around midyear.

 “The yield on 10-year Treasuries has risen notably to start the year, touching as high as 1.89% last week, as markets have begun to price in expectations for rate hikes spread out over the next few years,” Glenmede analysts said in a note Monday.

Coupling with Equities endangers Bitcoin’s reputation as a safe haven

The FOMC meeting comes as the correlation between Bitcoin (BTC) and equities continues to tighten. Bitcoin’s recent past performance suggests the asset class is less like gold and more like stocks. This emerging behavior jeopardizes the primary reason for Bitcoin (BTC) to exist, to decouple from the traditional markets.

While Bitcoin(BTC) has historically been uncorrelated to other asset classes, such as equities, bonds, and gold, since March 2020, the trend has changed. Bitcoin’s rolling 90-day correlation to US equities has been consistently positive, since. We have also witnessed prior stock market corrections where Bitcoin plummeted while gold served as an effective hedge.

NYDIG researchers Greg Cipolaro and Ethan Kochav quoted “In the tighter monetary policy era of the past few months, those correlations have increased, as Bitcoin has fallen in sympathy with other risk assets.”

Lacking Gold like historical data to vouch for

Below are two charts depicting relative performance amid recent stock market corrections that illustrate that Bitcoin (BTC) is more positively correlated to equities than some might think.

Bitcoin price
Source: Tradingview

Quarter 4, 2018: Stocks fell nearly 20% and Bitcoin plunged as much as 50%, while gold traded up nearly 8%. The market volatility was sparked by a hawkish Federal Reserve and concerns of slowing economic growth due to trade tariffs. 

COVID-19 pandemic in early 2020, Bitcoin(BTC) again fell almost 50% while stocks fell as much as 34%. Amidst the de-risking carnage, gold traded flat, once again proving its standing as a safe-haven asset.

Price pressures to exist in the near term

Even today, amid a nearly 7% decline in the S&P 500 since the start of 2022, Bitcoin is down over 20% while gold is flat. The data is clear that for now, Bitcoin is less of a hedge against inflation, and is instead a volatile risk-on asset that does well when stocks do well, and vice versa.

“The correlation between Bitcoin and high-growth benchmark ARKK still stands at approx 60% year-to-date, versus 14% for the price of gold, reminding us to categorize Bitcoin and Altcoins as risk assets rather than safe-havens,” said Fairlead Strategies Technical analyst Katie Stockton. 

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FOMC Meeting, Treasury Yields swell as price risks mount for Bitcoin ahead of FOMC meeting

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