Bitwise’s latest report suggests that Bitcoin (BTC’s) undervaluation may increase if investor concerns about sovereign debt grow. Asset management firm, said mounting pressure on global bond markets could increase the role of Bitcoin as a hedge to macroeconomic risk. One valuation model suggested a fair value theoretically $224,000
Bitcoin could be supported in the long term by a turbulent debt market
Bitwise pointed Global bond markets are under increasing pressure. According to the Organization for Economic Co-operation and Development, governments and businesses will have to borrow approximately $29 trillion by 2026. This is up 17% since 2024 and almost double what was raised a decade earlier. Approximately 78% OECD governments are expected to use their borrowings solely for refinancing existing debt.
Ten-year sovereign swap spreads among nations. Source: Bitwise
Bitwise stated that Japan is a major focus. Recently, the yield on Japan’s government bonds for 10 years climbed up to 2.78 percent. The yield of its 30 year bond reached an all-time high. Japan’s government debt, which is close to 230% of its GDP, ranks among the highest macroeconomic levels.
Reports indicate that Japanese bondholders hold US Treasurys worth approximately $1.2 trillion, however higher yields at home make overseas bonds less appealing. The 10-year Japanese Bond yield was 2.66% Tuesday, compared with 2.19% in Yen-hedged US Treasurys. This could encourage capital to move back to the domestic market.
The bond market is under stress worldwide. US Treasury 30-year yields hit 5.11% in May, their highest since 2007. Meanwhile, the 10-year swap rates have reached their highest since 2011-2012.
Bitwise thinks that central banks will be forced to inject liquidity into the financial markets to stabilize them, and this could lead to a greater bond market disruption.
Bitcoin Probability of Default vs Model Value Source: Bitwise
According to the firm, a model created by Greg Foss values Bitcoin around $224,000 as an alternative for sovereign default risks if its adoption becomes more widespread. Bitwise emphasized that this figure was a hypothetical estimate and not a target price.
A report released by the World Bank noted that, despite the fact that Bitcoin is expected to be bullish in the long term, it may not move much near-term due to the pressure of tighter financial conditions and higher real yields.
Related: Bitcoin back in ‘distribution phase’ as extreme fear grips crypto market
Bitcoin may benefit from a macroeconomic backdrop that is more favorable due to the decline in real returns
Bitwise stated that Bitcoin’s short-term prospects may be heavily dependent on the real interest rate, which measures Federal Reserve policy rates after inflation is adjusted. The report calculates real rates as Fed Funds rate less US CPI inflation. Bitcoin’s performance has historically been better when real interest rates are falling, since cash and bond prices become more attractive inflation-adjusted.
Source: Bitwise. Bitcoin and the change of US real interest rates from year to year. Source: Bitcoinwise
It was noted by the firm that Bitcoin’s bull market for 2021 coincided in part with decreasing real rates. Meanwhile, 2022’s bear market occurred alongside increasing real rates and aggressive tightening of monetary policy. Bitwise noted that although real rates remain restricted, a scenario wherein inflation rose while the Fed kept rates at their current level could potentially push real rate lower and create a more positive backdrop for Bitcoin.
Bitcoin Researcher Sminston outlined BTC is expected to trade in the range of $90,000.00 and $255,000.00 by 2026. This estimate was based on the Bitcoin Decay Channel. The model uses a logarithmic pricing system that historically has identified the tops and bottoms of major cycles. According to the analyst, Bitcoin’s recent recovery occurred in the long-term zone of support for the model. The outlook remains bullish.
Related: Bitcoin volatility is down 56% but analysts still expect up to 20% BTC price move
“This article is not financial advice.”
“Always do your own research before making any type of investment.”
“ItsDailyCrypto is not responsible for any activities you perform outside ItsDailyCrypto.”
Source: cointelegraph.com
