In recent times, inflation-adjusted yields on U.S. government bonds have been on the rise after a prolonged period of stagnation. This increase in real yields has led to concerns about potential risk aversion in the stock market and broader financial markets. However, experts in the crypto industry anticipate that bitcoin (BTC) and digital assets, in general, will maintain their resilience in the face of rising yields.
According to data from TradingView, the 5-year real yield reached nearly 2% last week, surpassing the high seen in September 2022 and reaching its highest level since late 2008. The 10-year yield currently stands at 1.6%, just 11 basis points away from levels last observed in 2009. Additionally, the two-year real yield has climbed to 3%, marking its highest point in at least a decade.
Historically, rising real yields have hindered economic growth and diminished the appeal of investing in risky or zero-yielding assets such as bitcoin and gold. Bitcoin and the tech-heavy Nasdaq index have typically moved in the opposite direction of real yields. However, crypto banking firm BCB Group’s head of OTC trading, Richard Usher, suggests that the recent surge in real yields poses more of a challenge for stocks than for digital assets.
Usher explains that with a one-year bond offering a 6% yield, it becomes a viable alternative to stock market exposure. He argues that investors in cryptocurrencies or tech stocks are usually seeking higher potential returns or investing in the long-term growth of these sectors. Therefore, Usher believes that the increase in real yields will likely impact blue-chip stocks more than technology or crypto markets and will not disrupt the medium-term growth trajectory of these assets.
During last year’s price crash, most macro traders, who are sensitive to interest rate changes and inflation-adjusted bond yields, withdrew from the crypto market, leaving long-term “HODLers” in control.
The breakout of the five-year real yield from a nine-month consolidation pattern suggests a continuation of the rally that started in December 2021. So far, both bitcoin and the Nasdaq index have remained unaffected by the uptick in real yields.
Ben Lilly, a crypto economist at Jarvis Labs, believes that the increasing cost of borrowing in real terms may actually attract more capital to productive sectors like blockchain in the long run. He sees it as a normalization of the cost of capital, which can lead to the allocation of capital to areas that will enhance productivity in the years ahead. Lilly expects this normalization of yields to bring more investment into innovative areas such as smart contracts, programmable money, and decentralized finance (DeFi), all of which are anticipated to boost productivity.
In summary, despite the recent rise in real yields on U.S. government bonds, crypto observers and experts in the industry maintain their confidence in the stability of bitcoin and digital assets. They argue that the impact of rising yields is more likely to affect traditional stocks than technology or crypto markets. Additionally, they foresee the normalization of yields bringing more capital into innovative sectors like blockchain, smart contracts, and DeFi, ultimately driving long-term productivity.
