A declining U.S. dollar, increasing governance risks, and a steepening yield curve are fostering a positive outlook for Bitcoin, as highlighted in a Thursday investment note from QCP Capital based in Singapore. The U.S. dollar index, which tracks the value of the U.S. dollar relative to a basket of foreign currencies, has shed 11% of its value since the first half of this year and is currently hovering around 98.23.
“This is the largest decline since 1973–more than 50 years ago,” stated Stephen Gregory. With gold reaching an unprecedented peak of $3,578 on September 3, Gregory remarked, “It is evident that U.S. institutions are hedging the declining dollar.” The liquidity from gold is expected to transition into fixed supply assets such as Bitcoin and Ethereum, he stated. The drop in the U.S. dollar occurs alongside a bond market sell-off, with analysts pointing to inflation worries as the main factor driving the rise in 30-year yields in the U.S., the UK, Australia, and Japan. “It’s really unusual for a 30-year Treasury yield to rise in a Fed easing cycle,” Robin Brooks tweeted on Wednesday. Numerous nations had earlier transitioned their debt issuance to shorter maturities, resulting in a worldwide rise in long-term government bond yields. Brooks remarked in a follow-up tweet, “a move that may be coming back to haunt us.”
Alongside a commitment to short-term maturities, numerous central banks globally have initiated easing measures or are expecting additional easing, which helps to keep the front-end stable. The recent bond sell-off has, however, widened the gap between short- and long-term yields, leading to a steeper yield curve. In essence, investors are seeking greater returns for extending the duration of their loans. Compounding this intricate situation are increasing worries regarding the autonomy of the Federal Reserve. President Donald Trump has consistently urged Fed Chair Jerome Powell to reduce rates this year, aiming to manage the U.S.’s elevated interest levels on its sovereign debt. As noted by QCP, this fear is the reason the premiums stay “higher at the long end, causing the yield curve to steepen.”
A steepening yield curve indicates rising inflation expectations, but it may also suggest that investors are optimistic about economic growth, according to Gregory. With inflation on the rise, “risk assets like Bitcoin tend to outperform the market,” he explained, “perhaps this is the perfect backdrop for a crypto supercycle.” Bitcoin’s year-to-date return stands at approximately 96%, reflecting a decline of nearly 11% from its peak of $124,545, according to CoinGecko data. Gold, however, hit an all-time high of $3,578 on Tuesday and is up 35% this year.