Crypto lending now pays less than safe US government debt – Rayrice Forex News

Crypto lending now pays less than safe US government debt

Cryptocurrencies are facing a new threat: the lure of Treasuries offering the same payoff for less overall risk.

Cryptocurrencies are facing a new threat: the lure of Treasuries offering the same payoff for less overall risk. In a rare reversal, the crypto yield typically sought by institutions fell below what the US government would pay to borrow for three months, giving funds flowing into the digital space and family offices one less reason to keep investing.

The Federal Reserve’s hawkish stance is raising interest rates almost everywhere — except in the so-called crypto speculative world, where commodities have fallen alongside volumes, killing some major avenues for generating double-digit returns, while the Terra stablecoin project and projects like the Celsius Network The failures of crypto lenders have shaken confidence.

“Two years ago, interest rates in crypto were at least 10% and real-world prices were negative or close to zero,” said Jaime Baeza, CEO of ANB Investments, a hedge fund focused on digital assets. In crypto, yields have fallen and central banks are raising prices.”

This year’s crypto winter is about fending off key arguments for some proponents, such as asset class inflation and political turmoil. Instead, bitcoin is linked to stock benchmarks like the S&P 500, except it’s depreciating at a much faster rate.

But until recently, crypto yields have not matched or even surpassed risk-free government bonds.

Unlike traditional markets, falling yields do not mean lower risks for crypto. The products are shaped by trading volumes rather than risk sentiment, and reflect the amount an investor hopes to obtain by borrowing on exchanges and decentralized finance protocols, or by depositing with crypto lenders, often in the form of stablecoins.

Because they are not directly linked to central bank rates, crypto yields may decline even as borrowing costs rise in financial markets to reflect higher Fed hikes. It is creating an imbalance in some of the world’s speculative assets that could lead to a global slowdown, some market observers say. A lower yield means investors are less likely to buy tokens for lending, which results in lower demand and lower prices.

That volatility is becoming more pronounced after Fed Chairman Jerome Powell recently raised long-term rates to tackle stubborn inflation.

“The strong appetite for Treasuries has come out of crypto income,” said Sidney Powell, CEO of crypto lending company Maple Financial.

Diffie flow

Investors who previously chased crypto yields are no longer buying Treasuries; Instead, what is happening is that in most financings, higher rates are available for a certain amount of risk. For example, investors’ returns on global corporate debt rose to 4.4% during the financial crisis, according to Bloomberg Index.

A key measure of investor interest in crypto activities that generate income is the total value locked in the marketplaces where most loans are issued – the so-called DeFi platforms. This measure has fallen to $60 billion from a peak of $182 billion in December last year, Defilama said.

Meanwhile, Bitcoin is trading at $22,351, its biggest drop since March this year, after five straight weeks of outflows from Bitcoin and Ethereum ETFs totaling $99 million, according to CoinShares.

BlueBay Asset Management portfolio manager Caspar Hensee says this is still too high and suggests $10,000 is closer to fair value. Double-digit yields are largely thanks to central banks borrowing when interest rates approach zero, Hense argued.

Still, Inigo Fraser Jenkins, associate head of institutional solutions at AllianceBernstein, said that while the investment case for crypto is more difficult to make in a highly macro environment, institutional investors are still attracted to the experience of trading deals. Related properties.

“The real need is to see crypto as a stepping stone to a broader set of digital assets, especially tokenized real assets,” said Fraser Jenkins.

Prior to the recent reversal, crypto had a broad boom even with rollercoaster ups and downs. In the post-financial crisis era, as central banks seek to match economies with historically low interest rates, money managers want to return to riskier assets — a fallout for crypto.

“It’s a very different environment now,” said Andrew Sheets, chief cross-sectional strategist at Morgan Stanley. “The key cross-asset theme is moving from a near-zero and negative rate environment to a triple-A-rated T-bill earning more than 3%, guaranteed by the US government. This will impact the performance of non-yielding assets such as gold, some tech stocks and crypto.


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