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Rising Treasury Yields and Bitcoin’s Ascent a New Paradigm for Investors

The 10-year US Treasury yields reached 5% on Friday, marking a decade-high and continuing a trend of rising yields that has persisted since the beginning of the year. Initially, investors sought safe assets amidst the Israel-Hamas conflict, causing a temporary drop in yields. However, the bond market has continued on its yearlong trajectory, which has raised prospects for the introduction of a Bitcoin (BTC) spot exchange-traded fund (ETF).

The increase in yields can be attributed to the actions of the US Federal Reserve and other central banks, which have seemingly cooled prices that were running hot around 18 months ago. Nonetheless, market disruptions caused by labor strikes, conflicts, and political challenges have sustained high prices in several sectors, leading central banks to postpone interest rate cuts for the time being.

The Israel-Hamas conflict did briefly interrupt the bond selloff as investors sought shelter in Treasuries. In October, data from the US Commodity Futures Trading Commission revealed record levels of long positions in US Treasuries. This situation has challenged conventional Treasury investment strategies, as the typical playbook of buying duration on the last interest rate hike is being questioned.

Some investors argue that this situation may be overstated, as many investors focus on the benefits of coupon payments over short-term price fluctuations. Jack McIntyre of Brandywine Global believes that despite the current selloff’s challenges, holding onto a long-term view can yield rewards.

Economists at BlackRock and other investment managers anticipate that the Federal Reserve will raise interest rates at most once more in 2023. As the bond market faces challenges, institutions may consider allocating client assets to a Bitcoin spot ETF.

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The US Securities and Exchange Commission (SEC) has delayed rulings on several ETFs, leading investment managers to speculate that the SEC might approve multiple applications simultaneously. Bloomberg ETF expert Eric Balchunas suggests there is a 75% chance that the SEC will approve multiple ETFs before the end of the year. If this occurs, shorter-term investors may prefer Bitcoin over Treasuries in their portfolios. Institutional inflows could legitimize Bitcoin as a genuine asset class with a declining correlation with stock markets, even as Treasury yields rise.

In 2023, Bitcoin has outperformed the S&P 500, rising by 80% while the S&P has increased by 10%. Bitcoin has also outperformed the Bloomberg Global Aggregate Bond Index, a benchmark for passive bond funds, which is down 3.6% year-to-date. Bitcoin’s decoupling from both the stock market and the bond market positions it as an alternative asset favored by investment managers in the coming months.

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