Today’s spike in reverse repo agreements & treasury yields probably has the market wondering how it could effect bitcoin price action. Here we can get some clues by analyzing previous movements in both markets.
Case Study of Major Reverse Repo Spikes
To filter out noise and make a simplified comparison, we will only compare major peaks that stand out among local clusters. These 4 data points are all associated with rallies in Bitcoin price, followed later by retracements. One exception being the March 31, 2020 spike after the COVID crash, which resulted in a more sustained rally.
Repo spike dates are marked by the arrows and lines respectively.
June 30th, 2014
December 30th, 2015
December 30th, 2016
March 31st, 2020
From a fundamental valuation, or Stock to Flow standpoint, we are more likely at a March 31st 2020 scenario.
TLT 20+ Year Treasury ETF / Bitcoin Fractal
Any correlation between yields(inverse to bond prices) and Bitcoin has shown to be fickle and hard to determine given its short history. So taking a broad view of patterns could prove more useful.
Below we see an uncanny “echo” fractal between treasuries and Bitcoin. The fractal implies some more consolidation before a large breakout. If this fractal plays out, it would mean the bottom is in for Bitcoin.
TIPS/Inflation
Most fractals eventually split at some point, so should be followed closely and given context with other indicators to develop a comprehensive view of the market.
One can be found in TIPS or, inflation adjusted bonds, for a shorter-term signal. Unlike nominal interest rates, real interest rates and commodities are known to have a tight correlation. A quick look at the Bitcoin chart, and you can also find a match there.
It’s possible for real rates to move independently no matter the direction of nominal rates or FED actions. This is important to note when interpreting FED posturing.
The TIPS chart is painting a bull flag above major support. Looking ahead, any “transient” inflation will likely redouble with the pending infrastructure bill, which is now steadily gaining support from lawmakers. A continued TIPS rally is bullish for bitcoin.
Leave a Reply