After 8 months of bleed, risk-off is ending
A Fed late to tighten is a slave to the rates market.
Global asset prices move through different regimes. Correlations come and go, as do risk cycles. For the past eight months, rising yields and declining marginal liquidity have decimated bitcoin and equity prices. I now believe a shift is occurring in interest rates that will lead to relief for both risk assets.
As this publication grows in readership, I’m more determined than ever to make what we do at The Bitcoin Layer distinct from the seemingly thousands of other sources of information on financial and bitcoin analysis. And I landed back on narratives.
You see, with markets and news operating on a 24-hour cycle, it becomes too easy to lose the plot. That’s exactly what we want you to avoid, and by subscribing, we know you are seeking signal amongst all the noise.
Today, I’d like to demonstrably shift our narrative from where it has been since this post from October 2021:
The takeaway from that post was that the rates market always leads, and that tightening would be the name of the game. Well, 175 basis points (soon to be 250-300 basis points) later, the tightening has occurred. What I’m here to tell you today is that the tightening narrative ending, and that means a new regime for price action across asset classes. Needless to say, today’s post is a must-read.
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Goodbye tightening, at the margin
We have been in tightening mode for several months, but we have now entered a phase in which the tightening will soon be over and easing is upon us. Let’s go through the chain of events, starting last year as inflation really picked up:
CPI started to accelerate in mid-2021, as 5% readings were reached in May. This is also when the 2-year Treasury yield woke up and had its first significant jump. Then, October’s reading was 6.2%. By December, CPI reached 7%. This is basically when all hell broke loose—the frantic nature in which interest rate markets had to readjust during the time from January until May this year was remarkable, staggering, and very sudden.
Let’s look at the 10-year yield. We see the yield break through the 1.5% area (up arrow) and then a swift 200 basis point move upward to follow: