Stock is in danger, Bitcoin is rising?
The U.S. Stock market is in danger, Regional bank stocks continue to slide on Thursday with PacWest leading the way down 50%. However, Bitcoin may continue RISE.
I found some interesting evidence here:
DJI drop 1.25%, SPX -0.9%, and NDX -0.12% at the moment. Will U.S. Stock Price Continue to Fall in the Future? Here are some shreds of evidence from the Hidden Crisis of U.S. Treasuries.
In recent years, the rising level of U.S. debt has raised concerns about potential hidden crises in the Treasury market. I will discuss some of the key issues faced by the Treasury market, including the continuous rise in US debt levels; the effects of SVB collapse; major overseas owners of U.S. Treasury bonds reducing their holdings; and the potential credit risk for U.S. Treasury Securities.
- Rising Debt Levels
The U.S. national debt has continued to expand, mainly due to fiscal stimulus policies implemented by the government to address large-scale challenges such as economic recessions, financial crises, and the COVID-19 pandemic. By April 18, 2023, the total U.S. national debt exceeded $31.5 trillion.
Although the debt-to-GDP ratio has declined compared to 2022, it remains at a high level of 119.4% as of April 18, 2023.
This debt level is far higher than the 77% sustainable debt-to-GDP ratio set by the World Bank, raising concerns about the future repayment capacity of U.S. Treasuries.
2 SVB Collapse Spurs Treasury Turmoil; Investors Turn to Bitcoin as Hedge
Following the collapse of Silicon Valley Bank (SIVB.O), the U.S. Treasury market is experiencing intense fluctuations, with investors anticipating an extended period of instability before stability is restored to the bond markets.
The ICE BoFA MOVE Index (.MOVE), an indicator of anticipated U.S. Treasury volatility, has exceeded its peak during the COVID period and now hovers around levels reminiscent of the financial crisis.
On 23 Mar 2023, the two-year treasury's yield experienced its largest single-day decline since October 1987, and the 10-year benchmark yield dropped to its lowest point since February 3rd.
Since the SVB crash, BTC has surged nearly 60%, reflecting a massive inflow of risk-averse capital into decentralized and highly transparent cryptocurrencies. The soaring price trend of BTC during the SVB crisis period also suggests that BTC may have become a favored safe-haven asset for international investors.
3 Fed reverse repos reach unprecedented levels: A concerning trend
19 April 2023, the daily volume of overnight reverse repurchase agreements between the US Federal Reserve and private sector money market participants, primarily money market funds, hit a high data of $2.3 trillion. The continuous, significant involvement of the Fed in private short-term financial transactions, throughout both the earlier quantitative easing period and the current phase of monetary and quantitative tightening, demonstrates the inclination of financial institutions and other firms to engage with the Fed instead of transacting amongst themselves. This trend is detrimental and carries predominantly negative consequences for the US financial system and economy in the future.
4 Major overseas owners of US Treasury Bonds decline their holdings
Starting in 2022, China and Japan, the two largest holders of U.S. government securities, continued to reduce their holdings. Among them, China reduced its holdings from 1299.8 Billion at the beginning of 2022 to 1104.4 billion at the end of 2022. Japan, on the other hand, reduced its holdings to 859.4B from 1033.8 B. If foreign investors are concerned about the prospects of the US economy, they may reduce their holdings of US Treasury Securities.
Above are just my own opinions So, what do you think of the U.S. Treasury market and the stock market will go?