Bitcoin’s Bull Case Intensifies as Investors Bet on More Bond-Buying

Bitcoin’s long-term bullish outlook may have received further support from investors’ recent bet on long-term Treasury bills.

The Wall Street Journal reported On Wednesday, investors believe the Federal Reserve will start buying long-term US bonds after its next meeting in December. The mixed outcome of the November 3 election made investors think the central bank would need to take on more responsibility to support the US economy.

This is due to the rising number of coronavirus infections, coupled with the inability of the US Congress to pass the second stimulus package for months. A stuck Senate also ensures that American individuals and corporations will have to continue waiting to receive economic aid.

Loans from the future

The minutes of the November 4-5 meeting of the Fed advocated maintaining the existing bond purchase programs. However, it was also recognized that circumstances could cause the central bank to adjust.

The US economy faces uncertain times as US Treasury Secretary Steven Mnuchin decided to end some of the Fed’s key emergency loan facilities that have helped small and medium-sized businesses, as well as state and local governments.

10-year US Treasury bond yields. Source: US10Y on TradingView.com
US 10-year Treasury bond yields. Source: US10Y on TradingView.com

It has also left fewer options for the central bank than to buy long-term US Treasury bills, lowering borrowing costs for businesses and individuals. The Fed is not looking to increase purchases of short-term government bonds, as the yields on these are already close to zero.

In the meantime, Fed officials may also want to wait until December 16 to see whether or not the US Congress can pass a stimulus package. A non-partisan proposal of around $ 908 billion for economic aid has yet to be approved.

Bitcoin

The growth of long-term US Treasuries reduces the rate of return they offer – meaning investors get less cash after their bond expires.

Their huge demand results in investors having to buy inflation-resistant assets like Bitcoin. This explains why a return of less than 1 percent for the 10-year U.S. Treasury Department coincided with a 400 percent price rally in the Bitcoin market.

Bitcoin, cryptocurrency, BTCUSD, BTCUSDT

Bitcoin is up more than 160 percent since the start of the year. Source: BTCUSD on TradingView.com

Bitcoin has surged more than 160 percent YTD. Source: BTCUSD on TradingView.com

This is not only because a Treasury Department offers lower returns than Bitcoin, but also because the rate of return it offers may cost much less due to higher fiat inflation later on. Bitcoin, with its limited supply cap of 21 million tokens, protects investors from devaluing fiat currencies.