- The gap between yields on 10-year and three-month U.S. Treasury notes, known as dis-inversion, is moving towards zero.
- Ether’s inverse correlation with this yield spread is stronger than Bitcoin’s, indicating possible underperformance.
Unraveling Bond Market Indicators and Ether’s Path
In the constantly evolving landscape of cryptocurrencies, Ether (ETH) has lagged behind Bitcoin (BTC) in performance throughout the year. A pivotal clue to this trend emerges from the U.S. Treasury government bond market. Specifically, it’s the shifting dynamics between yields on 10-year and three-month notes – a phenomenon experts term ‘dis-inversion’ or ‘steepening’.
Deciphering Yield Spreads and Crypto Performance
For those unfamiliar with bond jargon, a ‘yield spread’ measures the difference between yields of distinct debt instruments, such as bonds. Historically, cryptocurrency prices, especially Ether and Bitcoin, have displayed an inverse relationship with this particular yield spread. As the yield spread inverts (becomes negative), crypto prices have typically risen, and vice versa.
While Bitcoin’s inverse correlation with this spread has slightly weakened over time, Ether’s association remains pronounced. Current data from Coinbase reveals that while Bitcoin’s 90-day inverse correlation has diminished to -0.42 from -0.8 earlier this year, Ether’s stands robustly near -0.75.
Recent trends point to a rising or ‘dis-inverting’ yield spread, potentially placing Ether in a precarious position, even as Bitcoin might find some protection from the expected spot ETF launch. This narrative isn’t new; market analysts have often likened Ether to rate-sensitive tech stocks, whereas Bitcoin is frequently dubbed the ‘digital gold’.
Recent data further substantiates this trend: the yield spread has climbed by 29 basis points to -0.65% within a week, its highest since January. This movement offsets the brief dive from -0.80% to -0.94% noticed at the beginning of the month.
It’s crucial to understand the significance of the 10-year and three-month yield spread. Historically, a negative spread has been an early warning of potential economic downturns. A subsequent steepening or dis-inversion often signals significant peaks in the equity market.
For added perspective, the spread plummeted by 130 basis points to -1.92% in the initial five months of the year. It was during this period that Bitcoin and Ether registered their year-to-date gains of 72% and 32%, respectively.
Another closely observed bond market indicator, the spread between the 10- and two-year notes, has also seen a dis-inversion, leaping by nearly 70 basis points to -0.34% in the past quarter, suggesting potential shifts in broader financial market sentiments.