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Bitcoin, Gold, Stocks Rebound With Drop in U.S. Dollar

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Key Takeaways

  • Bitcoin prices are on an upward trend this week.
  • Several other markets including the gold, bond, and stock markets are interrelated with its performance.
  • The Biden administration’s decision to introduce a new stimulus package could also affect the crypto market.

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Bitcoin and technology stocks rallied this week, recouping from losses due to rising bond rates. Along with changes in the bond and gold markets and new upcoming stimulus rounds, there are five important macroeconomic movements affecting Bitcoin.

The Bond Market

On a global macro-level, Bitcoin’s positive outlook began with the “reflation trade” in bond markets. 

The market can track the reflation trade using the yield curve indicator, which measures the difference between long-term bond yields and short-term contracts. A steeper yield curve indicates the market’s expectations of high inflation in the future.

The bond market’s ten-year-yield has tripled from a low of 0.52% in August. Additionally, short-term expectations are still low due to the prevalent effects of COVID-19 shock. Hence, rising yields have threatened to move value away from other assets.

yield curve bond
U.S. bond market yield curve. Source: Statista

The U.S. Stimulus and Inflation

In the United States, the Biden administration is days away from ratifying a third economic stimulus package of $1.9 trillion. The government passed $3.4 trillion worth of stimulus packages in 2020. 

The new stimulus round is likely to spark inflationary fears. However, the U.S. dollar has been in an uptrend thanks to the rising yields of long-term bonds. The dollar index (DXY) against other fiat currencies broke above the $90.50 resistance to a high of $92.50. 

U.S. dollar index (DXY) price chart. Source: Trading View

However, DXY corrected this morning by 0.28% after bond market sell-offs slowed down. Liquidity is now flowing out from the dollar again, which has restarted the devaluation trade.

The Stock Market

The correlation between Bitcoin and the stock market increased towards the end of February. The U.S. dollar’s strength from the bond markets hurt stocks and Bitcoin’s value slightly in early March. 

Bitcoin and S&P 500 Correlation Coefficient. Source: Trading View

Bitcoin has defied gravity during the reflation narrative. The alpha cryptocurrency has regained $1 trillion market capitalization with a price pushing towards $55,000. In the absence of a negative catalyst, the uptrend is likely to continue for stocks and Bitcoin.

The NASDAQ composite index and S&P 500 index are trading in the green as well. NASDAQ’s stock (NDAQ) has risen by 9.5% after closing last week at a new all-time high of $149.50. 

The Gold Market

Markets have given mixed signals regarding inflation expectations. While bond markets are expecting inflation, the price action of gold shows no worrying inflation signals.

Gold, the world’s oldest inflationary hedge, has been on a downward trend, losing support at $1790 per ounce to lows of $1675.

Nevertheless, gold prices gained 2% this morning to reach a high of $1720, so there is some reason for optimism.

The Reflation Narrative

Gold’s price action is a reaction to the bond markets and the beginning of the reflationary trade. It represents a market exposed to faster economic growth, price pressures, and higher yields in an attempt to revive from an economic crisis.

Fears around Bitcoin’s price have raised concerns the possibility that the asset is in a “bubble,” and the possibility that the deviation from the institutional investment narrative.

Alex Kruger, an independent analyst, told Crypto Briefing that concerns are unwarranted, noting that “an object can move against the wind for as long as the wind is not too strong.”

According to Kruger, there is more than one force affecting Bitcoin’s price right now. While the short-term movements in bond markets have created a headwind for Bitcoin investment among institutional investors, those forces could be temporary.

Disclosure: The author held Bitcoin at the time of press.

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