Key Insights
- Bitcoin has increased by more than 60% since December last year
- Since mid-summer 2022, the U.S. yield curve has been inverted
- What to worry about, however, is the curve’s “De-inversion”
- A curve “De-inversion” historically means that a recession may be on its way, signalling perilous times for Bitcoin
According to data, Bitcoin has increased by more than 60% since December last year, kicking off what is now regarded as the pre-halving phase for the next bullish cycle.
This week, the price of the flagship cryptocurrency and that of several altcoins have rallied significantly to the upside.
Bitcoin, in particular, has soared to a nine-month high of around $29,000, mostly as a result of the recent quick repricing of interest rate expectations around the world.
However, if any traders are looking for bitcoin bull run indicators, a good place to start looking would be what the U.S. bond market is suggesting.
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Although the negative spread between the yields on 10-year and two-year Treasury notes is starting to close (which is a very bullish sign), traders looking to open longs should exercise a bit of caution.
The difference between the two has dramatically shrunk by 80 basis points in just two weeks, and at the time of publication, it was only 30 basis points away from becoming positive.
But what does this mean for the crypto market and its traders? In this article, we take a deep dive into what you should be aware of as a crypto trader as the negative spread between the yields on the 10-year and two-year Treasury notes begin to narrow.
Trouble Ahead As Yield De-Inversion Curve Steepens?
The yield curve is steepening – and according to history, that’s something to worry about.
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For context, since mid-summer 2022, the U.S. yield curve has been inverted. This implies that the curve’s long end yields less than its short end.
Simply put, it occurs when the central bank and the bond market are in conflict.
Hence, when a central bank deliberately drives up short-term rates, an inversion occurs. At the same time, investors start to short, which pushes yields lower.
There are now actually two ways for the yield curve to become steeper.
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First, inflation and growth build-up, driving up long-term yields on the part of investors. But most of the time (at least during the past 40 years), this hasn’t happened.
Second, when there is a liquidity crisis or a recession and the Fed starts to lower interest rates. reducing the spread between the long and short ends and leading to the steepening of the curve
It is important to keep in mind that although being the first stage, the inversion is not the main signal.
Instead, the indicator that things are about to go bad is when the curve starts to un-invert.
De-inversion: An Impending Recession and What It Means For Bitcoin
The so-called de-inversion or re-steepening of the curve historically, has signalled that an impending economic recession is just a few months away.
According to a tweet from Michael Hartnett from the Bank Of America earlier in March:
Here's a great chart of the 2/10 yield curve, recessions, and the $SPX. I could see the inversion continue but it's when it steepens recessions happen and stocks fall. pic.twitter.com/KXhVNfeNxt
— Thomas Thornton (@TommyThornton) August 4, 2022
“The yield curve always steepens into a recession”
It appears that history is now repeating itself with the SVB crash and the steepening of the yield curve.
For context, all of these are facts:
- The spread between the 30-year and 2-year was negative 36 basis points (-0.36%) vs negative 103 (-1.03%) on March 10th.
- The spread between the 10-year and 3-month was negative 113 basis points (-1.13%) vs negative 131 (-1.31%) on March 10th.
- The spread between the 10-year and 2-year was negative 47 basis points (-0.42%) vs. negative 107 (-1.07%) on March 10th.
When investors’ minds are preoccupied with macroeconomic worries, Bitcoin, however, which tends to move in line with several tech stocks, may be at risk of getting dragged lower.
According to a tweet from David Rosenberg, the founder and president of Rosenberg research and associates, it is important to “keep an eye out” for the yield curve ‘de-inverting’.
Rosenberg concluded the tweet, mentioning that the recession countdown officially begins the day after an inversion, with a median of 2 months and an average of 4 months.
A similar opinion to that of Rosenberg and Hartnett is that of Thomas Thornton, the founder of Hedge Fund Telemetry.
Keep an eye on the yield curve ‘de-inverting’. We’re now getting close. The day that happens after an inversion, the countdown to recession starts in earnest: average of 4 months and median of 2 months.
— David Rosenberg (@EconguyRosie) March 15, 2023
Thornton in a tweet, mentioned that “when the curve steepens, recessions happen and stocks fall.”
Historically, Nasdaq, Wall Street’s tech-heavy equities index, has suffered every time the curve normalized or re-steeped into a recession.
If history is any indication and if the ongoing yield curve de-inversion gains momentum, tech stocks may see witness more pressure, pushing the price of Bitcoin further down.
Bitcoin In Terms Of Price
Bitcoin, according to data from CoinMarketCap, appears to be losing steam.
The flagship cryptocurrency is only up by 6% over the last week and is down by 2% over the last day at the time of writing.
Bitcoin appears to be in an ascending channel and may have been in this formation since the fourth quarter of 2022.
However, after its brief rally to the top of the channel last week, Bitcoin appears to have met some form of resistance and is having a hard time breaking through.
Bitcoin reversing trajectory to the bottom of the channel may not completely be out of the cards, if the bulls fail to push the cryptocurrency into a breakout from the top of this formation around the $29,000 zone.
If the bulls are unable to initiate this breakout, Bitcoin may decline further down to the second support zone around $24,700 where the bulls and bears may grapple again for control of the market.
If this support zone again fails to hold, the flagship cryptocurrency may decline straight down to $21,250.
However, if a breakout from the $29,000 zone happens, Bitcoin may rally straight up to the $32,000 – $35,000 zone.
In all, the RSI on the daily chart appears to be headed for the neutral zone, and a retest of the $24,700 zone may be just the way to do that before another attempt at a breakout from $29,000.
Disclaimer: Voice of crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.
