Renowned cryptocurrency specialist and Cinemhin Ventures founder Adam Cochrane recently shared his analysis on the correlation between Bitcoin price fluctuations and US Treasury auctions. Cochrane’s insights were primarily communicated through his notes, which have garnered considerable attention.Thank you for reading this post, don't forget to subscribe!
Bitcoin price experiences an upswing in the aftermath of each treasury auction
Cochrane highlights a unique pattern: “Some prominent market makers show a keen interest in the interplay between Bitcoin and real rates (presumably due to potential ETF investors). Every time a favorable US Treasury auction occurs, Bitcoin displays a price movement within approximately five minutes. This observation suggests a correlation between the auction outcomes and subsequent Bitcoin price fluctuations.
The essence of Cochrane’s theory revolves around the concept of real interest rates, which have an inverse relationship with Bitcoin. Real rates refer to inflation-adjusted interest rates and significantly impact investment decisions in various asset classes in conventional finance.
Cochrane posits that Bitcoin prices tend to rise shortly after a successful US Treasury auction, which typically signifies lower yields (thus, lower real rates). According to Cochrane, this trend is indicative of market makers confidently betting on substantial funds being allocated to Bitcoin as a safeguard against real rates.
This relationship assumes greater significance amidst ongoing discussions concerning Bitcoin exchange-traded funds (ETFs). Bloomberg experts are optimistic about a 90% chance of a spot Bitcoin ETF receiving approval by year-end.
Notably, this speculation is partially driven by active communication between the US Securities and Exchange Commission (SEC) and applicants such as BlackRock and Fidelity. These dialogues have led to revised applications being submitted. As Cochrane observes, the intensification of these conversations has strengthened the correlation: “Somebody is speculating that Bitcoin will attract significantly larger funds in comparison to actual rates.”
Cochrane also points out the impact of Bitcoin’s price movements on the broader financial market: “BTC’s momentum during any uptrend is quite evident. Given its current catalysts, it is bound to influence other segments of the market.”
Testing the theory still awaits validation
When asked about backtesting this theory, Cochrane acknowledges the lack of long-term data. Nonetheless, he stresses the novelty of this trend: “Hmm, perhaps someone has access to that data? I merely monitor it manually. Besides, the correlation has only emerged over the past few weeks to a month since the ETF discussions have assumed greater significance. Therefore, it isn’t feasible to conduct long-term backtesting.”
While Cochrane’s theory remains in its nascent stages, his insights present a captivating narrative that bridges the gap between traditional financial markets and Bitcoin. As discussions surrounding Bitcoin ETFs gain traction, these observations may prove increasingly pertinent, providing valuable insights for investors.
As of now, Bitcoin is trading at $35,278.
Featured image from Shutterstock, chart from tradingview.com