Bitcoin (BTC) is trading tentatively even as intermarket factors favor an extension of July's double-digit gain.
The largest cryptocurrency by market value was changing hands at $23,300 at press time, down 1.3% on a 24-hour basis, having failed to keep gains above $24,000 over the weekend. Futures tied to the S&P 500 nursed a 0.15% decline.
What appears to be a chart-driven pullback could be fleeting considering the declining real, or inflation-adjusted, bond yield in the U.S. In two weeks, the yield on the 10-year U.S. inflation-indexed security has dropped 46 basis points to 0.20%, the lowest point since May 31, reviving the case for investing in risk assets. Historically, bitcoin has moved in the opposite direction to the real yield. The 90-day correlation coefficient between the two stood at -90% at press time, indicating a strong inverse relationship.
"Since the [U.S. Federal Reserve] meeting last week, real yields have been falling across the curve. Here we can see both five- and two-year real yields falling back into negative territory, while 10-year real yields are dancing right above 0," Cameron Dawson, chief investment officer at NewEdge Wealth, said in a Twitter thread, adding that the decline in real rates contributed to the recent rally in growth stocks.
A positive real yield means the payout from investing in bonds exceeds market-based measures of inflation. The higher the real yield, the lower the incentive to hold risky investments and vice versa. Real yields collapsed below zero after the coronavirus-induced crash of March 2020, sparking an unprecedented bull run in risk assets, including bitcoin. The cryptocurrency's bull market ended in November 2021 as the yield on the 10-year inflation-indexed security bottomed at -1.17%.
Bitcoin's biggest nemesis, the dollar index (DXY), also traded weak early Monday, offering positive cues to the cryptocurrency. The DXY hovered around 105.70, down 0.7%, hinting at an extension of the slide from the 20-day high of 109.29 reached on July 14.
If the real yield and the dollar continue to lose ground, that could add to demand for bitcoin. A recently released Bank of America (BAC) survey of fund managers, conducted July 8-15, showed dire levels of pessimism and increased cash holdings – potentially adding to buying pressure.
"There's a lot of pent-up buying pressure in risk assets, including crypto," analysts at crypto options platform Genesis Volatility wrote in Sunday's edition of the market analytics note. "Stock FANG charts look like they could explode higher and crypto could do the same," they wrote, referring to Facebook (now Meta), Apple, Netflix and Google (now Alphabet).
While the path of least resistance for bitcoin appears to be on the upside, the week ahead could bring plenty of volatility as a raft of manufacturing data is scheduled for release across the globe. On Friday, the U.S. Labor Department will release July jobs data, known as the nonfarm payrolls report, detailing the employment picture in the world's second-largest economy.
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