What Does a Yield Curve Inversion Mean for Crypto?

The 10-year and 2-year Treasury yields inverted once again this morning, bringing the cryptocurrency market into focus. Analysts have historically viewed the spread between Treasury bonds as a recession indicator. A yield curve inversion, when 2-year bond yields rise above 10-year returns, frequently precedes an economic pullback. Today, however, many investors are interested in how the bond market may prove an ominous sign for the cryptocurrency market going forward. So what does a yield curve inversion mean for crypto fans?

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Well, crypto’s growth over the past few years has further implicated decentralized assets in modern financial markets. As such, this morning’s Treasury yield inversion serves as a bearish signal for a number of risk assets, including crypto. Today marks the third time Treasury yields have inverted in just the past three trading days. Prior to this, the 10- and 2-year yields hadn’t inverted since 2019.

It seems last week’s job report has amplified concerns that the Federal Reserve will increase interest rates quicker and more aggressively than previously expected.

Bitcoin (BTC-USD) and other major cryptos have seen something of a resurgence of late. BTC touched its $47,000 resistance level last week, a refreshing change of pace given its tumultuous past few months. So how does today’s bond market action affect crypto?

What Does a Treasury Yield Inversion Mean for Crypto?

A Treasury yield inversion could come across as a sell sign for investors shying away from riskier assets. Indeed, just as growth and tech stocks tend to see fewer investments in times of economic uncertainty, cryptos will likely experience a similar drop off. This is despite some viewing major currencies, like BTC, as long-term hedges against inflation.

Many have expressed fear over the Fed’s impending interest rate hikes. Indeed, the Fed has something of a balancing act ahead of it in trying to raise interest rates to curb inflation, whilst not stifling the country’s economic recovery. Inflation indicators are currently at their highest level since the 1970s, with many analysts only expecting further price rises going forward. Fed Chair Jerome Powell has repeatedly iterated hope for a “soft landing” in the central bank’s impending rate hikes. However, not everyone is as confident in the possibility.

Last month the Fed levied its first interest rate hike, of about 25 basis points. The Fed is expected to increase rates an additional 218 basis points over the rest of the year.

The crypto market continues to behave frantically as impending Fed hikes further eats away at investor confidence. Rest assured, analysts will be watching decentralized assets closely in relation with monetary policy changes.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.


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