Treasury Yields Flip Negative as Crypto Lending Takes Off: Kaiko Report

Real yields that recently hit their lowest levels since 2003 are going down as consumer prices increase at their slowest pace in six months, making fixed-assets in classic portfolios underperform.

The crypto market has been recovering from the July 21 low of just under $1.3 trillion, having reached $2.47 trillion when earlier last week, the market experienced a small hiccup yet again.

In the past week, the market has been trying to make its way back up again but is currently struggling to break out strongly above.

Still, Bitcoin is currently trading around $46,800 and Ether at about $3,400, while the total crypto market cap is now past $2.2 trillion.

Amidst this, as we reported, lending in the cryptocurrency sector has been taking off, with DeFi stablecoins’ interest rates continuing to increase. Stablecoins’ total market cap has also grown to $123.68 billion, from less than $6 billion in March 2020.

“Treasury yields flip negative as crypto lending takes off,” noted crypto data provider Kaiko in its latest report.

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US Treasury yields went down on Tuesday after data showed that consumer prices increased at their slowest pace in six months. The consumer price index, a key inflation report, showed a 5.3% year-over-year increase for August, and Core CPI, which excludes volatile food and energy prices, rose 0.1% month over month – both slightly less than the expectations.

In reaction to this, the yield on the benchmark 10-year Treasury note fell to 1.285%, and the yield on the 30-year Treasury bond slid to 1.867%. Yields move inversely to prices.

Nonfarm payrolls, however, grew by just 235,000 in August, well below expectations of 720,000 new positions.

The Federal Reserve is currently monitoring the inflation, which it wants to see hit its 2% target and looking for strong employment results to start paring the monthly bond purchases.

Kaiko noted in its report that the Fed’s emergency monetary accommodation is what has put significant downward pressure on long-term bond returns over the past year.

“As global inflation increased and growth expectations worsened, real yields turned negative hitting their lowest levels since 2003 this past August.”

While fixed-income assets have been offering steady income flows, low volatility, and protection against falling equity valuations in a diversified portfolio over the past years, now that yields are drifting lower, the fixed-income allocation in the classic 60/40 portfolio is likely to underperform.

This combination of the ongoing low yield environment and the rising demand for liquidity in crypto markets is making the nascent crypto lending industry popular among market participants, it said.

In comparison to 0.7% per year paid by a typical savings account, even the centralized options in the crypto offer sizable returns ranging from 3% to 12%, which can get astronomical for big risk-takers.

In DeFi, the popular lending protocols Compound Finance and Aave have already launched their services specifically for institutions.

“Crypto lending allows users to supply cryptocurrencies in exchange for earning an annualized return, even in the absence of price appreciation.”

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Author: AnTy

Bitcoin Is ‘Trading’ Like a Risk-On Asset But Gold’s Also Feeling the Selling Pressure

  • Bitcoin, oil, overseas equities, Treasury yields plunging
  • US President Donald Trump promises fell short of what investors were hoping
  • Gold also feeling the pinch from the fall in financial markets

Bitcoin started the day at a deeply red note, tanking to $5,713, a level last seen in May 2019. Overall the crypto market lost more than $50 billion, as altcoins followed bitcoin down.

The rout deepened on Thursday for the stock market as well as S&P 500 opened the market at 6.6% losses and the Dow Jones Industrial Average plunged 1,700 points.

CME Group meanwhile is closing its Chicago trading floor on Friday “at the close of business,” as a precaution due to the coronavirus.

Coronavirus also led the National Basketball Association to suspend its season indefinitely after Utah Jazz players tested positive for the new virus. Academy Award-winning actor Tom Hanks and his wife Rita Wilson also tested positive for the coronavirus.

Investors’ expectations not met

From bitcoin, oil, overseas equities to Treasury yields everything plunged today after the World Health Organization declared Coronavirus a “pandemic”. Coronavirus (Covid-19) has infected 126,000 people globally while the US death toll was at 38 early Thursday with over 1,310 confirmed cases.

On Wednesday, US President Donald Trump restricted travel from Europe to the US for 30 days starting Friday. Trump pledged to provide financial aid and promised liquidity and capital but offered few details.

“Donald Trump’s public address fell short of what investors were hoping for,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Today, European Central Bank decided not to cut interest rates despite the market expectations for a 10 basis point cut to stimulate the euro economy amid fears that a recession is about to hit the region. Both the Bank of England and the Federal Reserve cut rates over the last week.

Though the rates weren’t cut, the central bank did expand its asset purchase program by 120 billion euros ($135 billion) and announced measures to support bank lending.

Investors looking to de-risk

Gold, on the other hand, rose on worries about the economic impact of the coronavirus. Spot gold rose 0.5% to $1,642.46 per ounce, but down from the 7-year high $1,702 hit on Monday.

However, on the flip side, traders are selling gold to fund margin calls which are capping the yellow metal’s gains. Vandana Bharti, assistant vice-president of commodity research at SMC Comtrade said,

“Gold is now feeling the pinch from the fall in financial markets and travel ban. So, investors will keep money out of the markets for some time or book profits from the high levels, because of which we’ve seen some selling pressure in gold.”

Bitcoin meanwhile continues to follow the stock market which indicates the cryptocurrency is a risk-on asset.

“Bitcoin is trading like a risk-on asset. Not a safe haven, but the exact opposite,” said economist and trader Alex Kruger. However, the trader explained that the flagship cryptocurrency is trading like a risk-on asset and not being one as “investors are now looking to de-risk.”

However, Gabor Gurbacs, a digital asset strategist at VanEck maintains that both bitcoin and bullion are “safe-haven competitors against negative yielding government debt.”

The recently turned negative-yielding government bonds are relatively new, and “the next decade may redefine fundamental investment axioms about safe-haven assets.”

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Author: AnTy

BlockFi To Cut Rates For ‘Tier 1’ BTC And ETH Lenders While Boosting ‘Tier 2’ Starting Feb 1

  • BlockFi announced changes in its Bitcoin (BTC) and Ethereum (ETH) lending yields starting Feb. 1.
  • Changes follow the increasing price and interest in the crypto assets.

An official announcement from BlockFi, a cryptocurrency startup that allows users to lend and earn interest on digital assets, stated the company will reduce the overall interest paid to lenders of Bitcoin (BTC) and Ethereum (ETH) starting February 1.

The changes come at a time the crypto market is experiencing tremendous growth as Bitcoin soared past $8,000 and ETH rocketed past $150, at the start of the year. According to the CEO of BlockFi, Zac Prince, the changes are set to accommodate the changes in market sentiments and price across the market. A growth in value means the lending demand is expected to hike effectively bringing the yield down. Zac said,

“As market conditions change, particularly price sentiment, this has an effect on the prices in the crypto borrowing market which is a big driver of rates that BlockFi can offer to our clients.”

BlockFi implements new yields for BTC and ETH

The report stated new rates for both BTC and ETH, the former witnessing its yield drop from 6.2% for Tier 2 (loaning up to 5 BTC) to 5.1% for its Tier 1 customers, those borrowing up to 10 BTC. The new rates will see the latter crypto cut its lending yield by 0.6% from 4.2 percent for Tier 1 customers, those borrowing up to 1000 ETH to 3.6 percent for those loaning up to 500 ETH (Tier 2).

Despite the lower rates offered, Zac maintains the company still offers the most competitive rates in the field. He said,

“Our rates are still way ahead of alternative options and we remain the only retail-focused interest-earning platform.”

The lending yields for other cryptocurrencies including Litecoin (LTC) and Gemini Dollar (GUSD) remain unmoved.

The latest move seems to be a move towards larger crypto investment in the firm as the holding/lending yield were adjusted upwards for Tier 2 investors on both BTC and ETH. Tier 2 BTC lenders will receive a percentage bump from 2.2% as ETH lenders receive 1.5% bump to 2%.

At the end of 2019, BlockFi announced trading on the four cryptocurrencies offered with zero trading fees.

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Author: Lujan Odera