In a recent post on Lumida Wealth, recognized as an SEC registered investment advisor, is known for its specialization in alternative investments and digital assets.
Ahluwalia cheep emphasized the need to monitor bitcoin‘s response to specific macroeconomic events. He stated: “The test for bitcoin as a macroasset will be ‘What happens if a Treasury auction fails?’ This year, bitcoin rallied during (1) the March bank failures and (2) when Treasury rates shook the markets. Here is the third test…”
Will bitcoin See Another 50%+ Rally?
Recall that the price of bitcoin skyrocketed more than 55% following the US banking crisis earlier this year. On March 10, 2023, the unprecedented collapse of Silicon Valley Bank, attributed to a bank run combined with a capital crisis, became a focal point of the broader US banking crisis in 2023. This produced an effect dominated with multiple small and midsize US banks falling in a span of five days. While global banking stocks plummeted, bitcoin saw a substantial rise in value.
More recently, bitcoin is rallying even as Treasury rates continue to disrupt global markets. With the 10-year US Treasury yield crossing the 5% mark for the first time in 16 years, there are signs of rising government bond interest rates. Typically, such increases in returns can push investors to reconfigure their portfolios away from risky assets, increasing market volatility. However, like gold, bitcoin has recently been acting as a safe haven asset in turbulent times.
Elaborating on the topic, Ahluwalia clarified: “bitcoin‘s rally, in part, is due to concerns that the Federal Reserve needs to intervene with yield curve control or QE. (…) Fidelity argues that the Federal Reserve may need to adopt Japanese-style yield curve control. If so, that would be very bullish for real estate, stocks, bitcoin, bonds, REITs, TIPS, and real assets in general. It would also be bearish for the USD. “The United States has difficult decisions ahead.” Additionally, he emphasized the importance of structuring portfolios to withstand potential economic shocks and underlined the importance of commodities in weathering inflationary pressures.
Ahluwalia shared his perspective on the current state of the Federal Reserve and Treasury markets, pointing to recent Treasury auctions that showed softer bid-to-cover ratios. “There is a legitimate argument that the Federal Reserve may need to intervene in the Treasury markets. Recent Treasury auctions have weaker bid-to-cover ratios. Japanese and American households are marginal buyers… and have been rewarded with losses,” Ahluwalia said.
Three peat for btc as a safe haven
He added that the Federal Reserve’s balance sheet “is already upside down (…) it has the equivalent of negative equity (called Deferred Assets) – an accounting treatment that is not allowed for private companies… The Federal Reserve… has a value of 1 .5 billion dollars. -market losses because he bought Treasury bonds and MBS. For the first time in 107 years, this bank has a negative net interest margin. “Your losses are about to exceed your capital base.”
Ahluwalia explained that a Treasury auction is considered unsuccessful when the US Treasury Department begins its regular auction of government securities, such as Treasury bills, notes or bonds, but fails to attract adequate bids to cover all of the securities on offer. . Basically, this indicates a lack of investor interest in acquiring government debt tools at predetermined interest rates or returns.
On the intrinsic value of bitcoin, Ahluwalia noted: “My view on bitcoin is that it is a ‘hedge against negative real rates.’ That’s the CFA expression for what Bitcoiners colloquially call ‘go brrr money printer.’” He also highlighted the potential repercussions on risk assets if long-term rates were to see a significant rise.
“If long-term rates spike, that would hurt risk assets like long-duration Treasuries. The higher discount rate would trigger a rerating of the stock, much like what we saw in 2022 and the last two months. However, if bitcoin can recover during a ‘yield curve dislocation scenario, that would give bitcoin a ‘three-peat’. bitcoin would then find a welcome place on a greater number of institutional balance sheets,” Ahluwalia concluded with his bullish thesis for bitcoin.
At the time of publication, btc was trading at $34,145.
Featured image from Shutterstock, chart from TradingView.com
