Is it a coincidence that bitcoin has broken $50K at the same time as the news media is full of stories about a potential US default as a function of failure to raise the debt ceiling in October?
The chart shows that $BTC (white) spiked exactly as US T-bill yields (yellow) spiked
The chart shows that $BTC (white) spiked exactly as US T-bill yields (yellow) spiked
That is, bitcoin prices moved sharply higher exactly at the same time as short-dated T-bill yields (those maturing after October 18, when Yellen has said Treasury funds will run out) spiked, and embedding a 'default premium'
We cannot prove anything statistically in a sample of one, and if we look at how the dollar is trading, we do not have a global USD decline (the dollar has generally been firm in recent weeks), so it is not a slam-dunk conclusion.
But it fundamentally makes sense that crypto/bitcoin becomes more attractive, if there is default risk associated with 'fiat instruments'.
This is a common thought in EM space. And perhaps it is a relevant thought in the US too...
This is a common thought in EM space. And perhaps it is a relevant thought in the US too...
We can have a long debate about whether the default risk is real, and clearly the premium on US T-bills is not in Evergrande magnitude. But it is there in some form, and it should not be there. It is bizarre.
https://twitter.com/jnordvig/status/1445378703056375813
The USD is the world's reserve currency. It is absurd that instruments, such as T-bills, that are supposed to be the most risk-free you can imagine, has this type of issue hanging over them.
For those that worry about 'cryptoization', this is real problem. Capital flight is supposed to be an EM issue. But if USD assets are not safe, it could be a major bonus for the crypto space, via USD flows.
https://twitter.com/jnordvig/status/1445558878515564544
Policy makers are thinking hard about digital central bank currencies, to compete with private sector crypto. But it would be much a more effective defense to make the fiat version safe and sound; and avoiding default risk on T-bills would seem a very simple first step.
I will leave it at that. US politics are very special, as the debt-ceiling debate shows regularly. And the side-effects of that are many and complex.
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