When the current inflation rate is 3.7% and on an upward trajectory, there's little incentive to secure a 4.4% yield, prompting investors to demand a 4.62% annual return on 5-year U.S. Treasuries as of Sep. 19, marking the highest level in 12 years.This data unequivocally demonstrates that investors are avoiding government bonds in favor of the security of cash positions. This may seem counterintuitive initially but aligns with the strategy of waiting for a more favorable entry point.
If investors lack confidence in the Fed's ability to curb inflation without causing significant economic harm, a direct link between a stronger DXY and reduced demand for Bitcoin may not exist. On one hand, there is indeed a decreased appetite for risk-on assets, evident from the S&P 500's negative performance of 4.3% in September. However, investors recognize that hoarding cash, even in money market funds, does not ensure stable purchasing power.
However, it's important to note that this analysis overlooks the fact that the same pressures from inflation and recession will likely increase the money supply, either through additional Treasury debt issuance or the Fed's bond purchases in exchange for U.S. dollars.
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