Why is Bitcoin's bull run correlated with the U.S. bond market?

Bitcoin’s decoupling from gold and its inverse relationship with stocks have been widely reported in the mainstream media, but one missing link is Bitcoin’s impact on U.S. government bonds . Previously considered a non-issue, the bonds’ negative yields have caught the attention of on-chain analysts and investors.

Preston Pysh is one of them, and Pysh recently tweeted, “People say Bitcoin is just replacing gold, which by and large has not materialized, that’s what bonds are all about, good luck convincing people who hold 100 trillion in bonds (with no yield) to hold on because their future par and coupons are locked into a fixed fiat value.”

This shifted the focus from the Bitcoin vs. Gold debate to bonds, with enough people mentioning Bitcoin's price run-up as comparable to the 70s gold run or the tech stock boom. With a general shortage of stores of value as investment options, the emergence of Bitcoin was almost inevitable.

While the bitcoin versus gold debate is starting to seem like a repetitive narrative for fund managers and traders, the bond market is suffering in a very different way.

Inevitable negative interest rates due to inflation and the negative correlation between the U.S. dollar and Bitcoin give analysts more reason to believe that the S2F model for cryptocurrencies may be possible.

According to Bloomberg data on inflation-protected bond yields, all bonds are now trading at negative yields, and municipal bonds face a similar fate. Currency devaluation sets a precedent for turning to Bitcoin as a reserve asset for U.S. Treasuries, which also explains Michael Saylor’s bold move to replace cash reserves with Bitcoin.

The crisis facing bonds at present is the impact of inflation. Due to rising inflation, bond yields are close to zero or even negative. It is expected that the situation will get worse as inflation rises.

Even before inflation rises sharply, there are many bonds with negative yields. So where would the average investor or fund manager look for a hedge?

What can be seen is that investors are turning to an asset with a triple-digit annual return rate - Bitcoin, and Bitcoin may be the hottest game at the moment.

Looking at the bond market, both Bitcoin and gold have gained a lot of investment from investors’ declining interest in bonds, and one of the key narratives here is “bonds, a broken inflation hedge.”

The original text comes from ambcrypto and was translated by Blockchain Knight. The English copyright belongs to the original author. Please contact the translator for Chinese reprint.