The Geopolitical Implications of the Israel-Hamas Conflict
The recent escalation of violence between Israel and Hamas has raised concerns about broader geopolitical implications. This conflict has the potential to draw in major powers such as the US, Iran, Russia, and China, leading to increased military spending. In addition, the US Federal Reserve’s decision to pause rate hikes has resulted in a “bear steepener” in the US Treasury yield curve, with long-term yields rising faster than short-term yields. This poses a problem for banks’ hedging strategies.
Sell-Off in Long-Term Treasuries
As a result of the bear steepener and the potential for higher US military spending, there is a sell-off in long-term Treasuries. Yields are rising as investors anticipate more government borrowing. This situation has led investors to seek alternatives to bonds, resulting in a rally for assets like gold and Bitcoin. This suggests that the market is concerned about inflation due to increased military spending.
Rotating into Cryptocurrencies
In light of these developments, the author suggests rotating out of short-term Treasuries and into cryptocurrencies, starting with Bitcoin and Ether. The trigger for this move would be the market realizing that the Fed will eventually adjust rates and remove the pretense of free markets. While there is a risk that this strategy may not be perfect yet, at some point action must be taken based on the developing situation rather than waiting indefinitely.
Hot Take: The Disturbance that Could Upend the Financial System
The escalating conflict between Israel and Hamas, combined with the bear steepener in US Treasuries and potential for increased military spending, sets up an environment that favors cryptocurrencies as alternative safe haven assets. As investors seek an inflation hedge amid expectations of massive government borrowing, assets like gold and Bitcoin are rallying. This presents an opportunity for a shift from short-term Treasuries to major cryptocurrencies. Ultimately, the exposure of the Federal Reserve’s control over interest rates will trigger a significant crypto bull run. While global conflict is unfortunate, its economic impacts may accelerate the adoption and appreciation of cryptocurrencies, potentially disrupting the legacy financial system.
By
By
By
