Central Banks globally are raising concerns about the impact that interest rate increases are having on banking solvency. With US inflation currently standing at 6%, 2.5% over the 10Yr bond yield and nearly a full 1.5% above the fed funds rate. Analysts are starting to conclude that further significant tightening is unlikely, and this is likely to be supportive for precious metals, commodities, and cryptocurrencies.
The Central Banks have created a situation which it is difficult to see how they will resolve in the long term. By using banks as the holder of overpriced Government Bonds, they have created a scenario where the financial sector is weaker than the real economy. Any attempt to defeat inflation is likely to hit the financial sector the hardest, and the only option at the moment appears to be to try and inflate their way out of their predicament without bond holders taking fright and causing a bond market crisis.
The current state of the Central Banks and their policies is likely to be supportive of Bitcoin and other inflation hedges. In the long term, it is difficult to predict how the Central Banks will resolve the situation they have created for themselves and real interest rates are likely to remain negative for the forseeable future.
The recent performance of Bitcoin has been very promising, the price firmly consolidating above the $25,200 level. Although price action today has been somewhat weaker than expected, it is likely to rebound in the near future. Any move toward the $26,000 level should be seen as an opportunity to add to existing long positions.
This article is written by Gavin Smith of Panxora Management Corp. Panxora is a Hedge Fund Manager so is likely to hold positions in all the asset classes mentioned in this article. This article is written as an opinion piece, not financial advice. Consult a financial advisor before making any investment decisions in any asset class.
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