You’ll have seen some striking crypto price moves over the last 24 hours. This is a direct reaction to the latest US Treasury intervention in the bond market.
If we understand it right, this is a mechanism to buy old (>10 year) long-term sovereign bonds/Treasuries (which are illiquid and in many cases trade at large discounts to the issue price), enabling the sellers to buy newly issued bonds.
This thread explains it in more detail.
The point is that, by creating more demand for newly issued long term bonds, you drive down the yield for long-dated bonds. The amount per programme is being increased from US$2bn to US$4bn.
Clearly the authorities are concerned about rising sovereign bond yields, and so they should be. This is a signal that they will intervene when necessary. It is also a signal that they are concerned, which might be counterproductive coming hot on the heels of the recent Japanese bond market intervention.
Will it have a lasting impact? We shall see…
There are several key points to make regarding price movements in this episode:
Bitcoin and Ethereum have shown that they remain sensitive to the debasement narrative. Bitcoin’s underperformance relative to gold last year would have put that in doubt in some investors minds. This will help to restore confidence in the asset and underpins our recovery thesis.
Ethereum has outperformed bitcoin and massively outperformed the rest of crypto. This is highly significant. It means that ETH is being treated as a scarce alternative financial asset by the market (similar to bitcoin) and not as a high beta tech stock. This move is not about “crypto”, it is about sound money. ETH is being traded as sound money.
In so doing, ETH has broken out of a multi-year down-channel relative to bitcoin. We argue this has much further to go, given the rapid adoption of blockchain technology.
Bitcoin has risen above the US$67,000 short term holders’ cost price we identified in yesterday’s Chainletter. Again, a positive momentum indicator. Are we emerging from the red zone in a similar manner to 2022/23?
Our take is that this is an important moment for the right digital assets. The intervention in itself is not large, but it signals that the authorities are both worried and ready to step in.
The only outcome is continued debasement, and the right assets in the digital asset space have passed an important test in how they have responded. It will surely encourage asset allocators to sit up and take notice.
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