Why Bitcoin Likes a Hard-On Environment

I want to re-examine the current macroeconomic environment and how it impacts the Bitcoin price. It has been a rough week so far, but one thing I can be sure of is that Bitcoin loves hard-on macroeconomic conditions.

The Money Map

Bitcoin and the 10-year yield

Source: Bloomberg. Bitcoin price $ and the US 10-year yield since 2011.

87% of Bitcoin’s performance was delivered while the US ten year bond yield has been rising.

The 87% is an update from 95%, which was the answer when I wrote the report. I was making the simple point that external factors matter, and you can’t escape that. If you start the exercise post-2013, when Bitcoin was in its infancy, this number jumps to 98%. Since the beginning of January 2014, $1 invested in Bitcoin became $1.25 in the slowdown environments, compared to $54.4 in the expansionary times. When I say Bitcoin likes a hard-on environment, I mean it.

What about inflation?

Moving onto Bitcoin and inflation, you get a similar picture, yet the results have not been quite so compelling. During the red inflationary periods, Bitcoin rose from $1 to $47 by 2013, then $432 to $9,299 between 2016 and 2018. And in the current cycle, a timely buy at $5,948 in March 2020 to today’s $50,000. For the blue deflationary boxes, you buy at $47, sell at $432, buy at $9,299, sell at $5,948, and would be out of the market today.

Bitcoin and the 10-year inflation expectations

Source: Bloomberg. Bitcoin price $ and the US 10-year breakeven rate since 2011.

What is the gold market telling us?

Gold performs best in a risk-off inflationary environment — hard-off. When real interest rates (bond yield less inflation expectation) are falling, there is rarely a better mainstream asset to own during such times. In recent weeks, real rates have started to rise (the black line has been inverted on the chart), which has put downward pressure on the gold price.

Gold and real rates

Source: Bloomberg. Gold price $ and the US 20-year real rate (inverted) since 2016.

Long-term inflation expectations have stalled

Source: Bloomberg. US treasury 5- and 30-year breakeven rates (inflation expectations) since January 2020.

Gold is trading rationally

Source: Bloomberg; ByteTree. Gold price $ and the Morris Fair Value Model $ since 2006.

Bitcoin still sees inflows, perhaps at gold’s expense

Source: Bloomberg; ByteTree. Gold and Bitcoin fund flows (daily traded ETPs and closed-ended funds), since 12 May 2020.

Applied data for digital asset investors. ByteTree provides real-time data, fundamentals, technical and deep blockchain market analysis for Bitcoin, and more.

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