The Rise in Real Yields and its Impact on Stocks and Crypto
The rise in real yields on U.S. government bonds is causing concern among some observers, who worry about potential risk aversion in stocks and the broader financial market. However, crypto observers believe that digital assets, like bitcoin, will remain resilient. The 5-year real yield reached its highest level since 2008, while the 10-year yield is closing in on levels last seen in 2009. The two-year real yield has also reached its highest point in at least ten years.
Key Points:
- Rising real yields can hinder economic growth and reduce the incentive to invest in risky assets like bitcoin and gold.
- The latest spike in real yields is more problematic for stocks than for digital assets like crypto and technology.
- Most macro traders left the crypto market during last year’s price crash, leaving long-term “HODLers” in control.
- The increasing real borrowing cost may actually bring more capital to productive sectors like blockchain and boost productivity in the long run.
- Normalization of yields is expected to bring more money into innovative areas like smart contracts, programmable money, and DeFi.
According to Richard Usher, head of OTC trading at BCB Group, the rise in real yields is more of a headache for blue chip stocks than for markets like technology or crypto. He believes it will not disrupt the medium-term growth story. Ben Lilly, a crypto economist at Jarvis Labs, also sees the normalization of yields as an opportunity for capital to be allocated to areas of innovation, such as blockchain and DeFi, which are expected to boost productivity.
Hot Take:
The rise in real yields may pose challenges for traditional stocks, but it is unlikely to significantly impact the growth of technology or crypto markets. Instead, it presents an opportunity for capital to flow into innovative sectors and drive productivity in the long term.
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