31 October 2023
In a recent post on X (formerly Twitter), Ram Ahluwalia, the CEO of Lumida Wealth, weighed in on the potential market impacts on Bitcoin, particularly highlighting the significance of a failed Treasury auction. Lumida Wealth, recognized as an SEC registered investment advisor, is known for its specialization in alternative investments and digital assets.
Ahluwalia’s tweet emphasized the need to monitor Bitcoin’s response to specific macroeconomic events. He stated, “The test for Bitcoin as a macro asset will be ‘What happens if there is a failed Treasury auction?’ This year, Bitcoin rallied during (1) the March bank failures and (2) as Treasury rates have rattled markets. Here is the third test …”
Will Bitcoin See Another 50%+ Rally?
To recall, Bitcoin’s price shot up by over 55% in the aftermath of the US banking crisis earlier this year. On March 10, 2023, the Silicon Valley Bank’s unprecedented collapse, attributed to a bank run coupled with a capital crisis, became a focal point of the broader 2023 United States banking crisis. This saw a domino effect with multiple small to mid-sized US banks falling within a span of five days. While the global banking sector stocks plummeted, Bitcoin experienced a substantial surge in its value.
More recently, Bitcoin is rallying even as treasury rates continue to unsettle global markets. With the 10-year US Treasury yield crossing the 5% mark for the first time in 16 years, there are indications of rising interest rates on government bonds. Typically, such yield increments may push investors to reconfigure their portfolios away from risk assets, adding to market volatility. However, akin to gold, Bitcoin has recently been acting as a safe-haven asset in turbulent times.
Diving deeper into the topic, Ahluwalia elucidated, “The Bitcoin rally, in part, is due to concerns that the Federal Reserve may need to intervene with Yield Curve Control or QE. […] Fidelity makes the case that the Fed may need to engage in Japanese style Yield Curve Control. If so, that would be strongly bullish for real estate, stocks, Bitcoin, bonds, REITs, TIPS and real assets more generally. It would also be bearish for the USD. The US has hard choices ahead.” He further emphasized the importance of structuring portfolios to withstand potential economic shocks and underscored the importance of commodities in weathering inflationary pressures.
Ahluwalia shared his perspective on the current state of the Federal Reserve and the Treasury markets, pointing to recent Treasury auctions that displayed softer bid-to-cover ratios. “There is a legitimate argument that the Fed may need to intervene in Treasury markets. The recent Treasury auctions have weaker bid-to-cover ratios. Japan and American households are the marginal buyer…and they’ve been rewarded with losses,” Ahluwalia remarked.
Three Peat For BTC As Safe-Haven
He added that the Fed’s balance sheet “is already upside down […] it has the equivalent of negative equity (called a Deferred Asset) – an accounting treatment that is not permitted for private companies… The Federal Reserve…has $1.5 trillion mark-to-market losses because it bought Treasuries & MBS. For the first time in 107 years, this bank has negative net interest margin. Its losses are poised to exceed its capital base.”
Ahluwalia explained that a treasury auction is deemed unsuccessful when the US Department of the Treasury initiates its regular auctioning of government securities, such as Treasury bills, notes, or bonds, but fails to attract adequate bids to cover the entirety of the securities on offer. Essentially, this signals a lack of investor interest in acquiring the government’s debt tools at the predetermined interest rates or yields.
On Bitcoin’s intrinsic value, Ahluwalia noted, “My view on Bitcoin is that it is a ‘hedge against negative real rates’. That’s CFA talk for what Bitcoiners refer to colloquially as ‘money printer go brrr’.” He also stressed the potential repercussions on risk assets if long-end rates were to see a significant spike.
“If long-end rates do blow out, that would hurt risk assets like long-duration Treasuries. The higher discount rate would cause a re-rating in stocks – much like we saw in 2022 and the last two months. However, If Bitcoin can rally during a ‘yield curve dislocation scenario that would give Bitcoin a ‘three peat’. Bitcoin would then find a welcome home on a greater number of institutional balance sheets,” Ahluwalia concluded his bullish thesis for Bitcoin.
At press time, BTC traded at $34,145.