The below is from a recent edition of BM Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
Our analysis throughout much of 2022 in regards to the bitcoin price action has held steady. Capital markets are in the midst of a deleveraging period due to elevated inflation readings hitting multi-decade highs, in an environment of historically low bond yields.
While on the surface, high yields may seem to be bullish for stocks and bitcoin, the reality is that the credit market is the dominant driver. Higher inflation and increasingly hawkish central bank monetary policy has led to a historic rout in the bond market.
When fixed-income instruments sell off, it leads to higher financing costs. Rising yields lead to higher discount rates, which lower the valuations of assets like real estate and equities, which further compounds the market selloff.
This is why bitcoin is trading very close in tandem with equity markets, in particular the Nasdaq 100 Index, as the assets have a 0.85 correlation over the past four weeks of trading.
Our thesis is simple. Bitcoin is a global monetary asset with a known fixed supply. The U.S. dollar is a debt-based fiat currency with a malleable supply, and during periods of credit contraction those dollars increase in value against risk assets despite the long-term assurance of increased supply and devaluation.
The bitcoin supply continues to be constrained as HODLers of last resort continue to reduce supply available on the market.