U.S. Government Debt Overtakes Crypto Yields In Current Macro

Bhushan Akolkar
September 13, 2022
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Amid the current macro conditions and fall of the crypto market, yields in digital assets have tanked under that offered by the safest U.S. government debt. The fall of the crypto hedge funds and lending players has also created a negative sentiment toward crypto lending putting pressure on yields.

The Fed’s monetary tightening measures amid soaring inflation include raising interest rates everywhere. Thus, in speculative markets like crypto, the yields have collapsed along with volumes. Thus, the lucrative double-digit crypto yields are to be seen nowhere today.

Jaime Baeza, chief executive officer of ANB Investments, a crypto-focused hedge fund notes:

“Two years ago, interest rates in crypto were at least 10% and in the real world rates were either negative or near-zero. Now it’s almost the reverse, because yields in crypto have collapsed and central banks are raising rates.”

Also, cryptocurrencies are still far from proving their mettle as a hedge against inflation and market volatility. Rather, they have been forming closer correlations to the volatile equity markets.

Note that cryptocurrencies behave differently from traditional markets where falling yields don’t signal lower risks for crypto. In crypto, yields are shaped by trading volumes instead of risk sentiment. Lower yields mean it is less likely that investors will buy more tokens to lend.

This could play a cascading effect leading to lower demand and lower price. Sidney Powell, the chief executive of crypto lending company Maple Finance said: “Higher appetite for Treasuries has sucked out liquidity from crypto”.

DeFi TVL Collapses

The total value locked (TVL) in decentralized finance (DeFi) is a key measure of interest in yield-generating digital assets. From its peak of $182 billion in December 2021, the TVL of the entire DeFi space has dropped to $60 billion now.

Courtesy: Bloomberg

Andrew Sheets, chief cross-asset strategist at Morgan Stanley said: “Now the environment is very different. A key cross-asset theme has been the shift from a near zero and negative rate environment to one where you can get over 3% on a triple A-rated T-bill that’s guaranteed by the US government. This will have an impact on the performance of assets with no yield such as gold, some tech stocks and crypto.”

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Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
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Why Trust CoinGape

CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.

About Author
About Author
Bhushan is a seasoned crypto writer with over eight years of experience spanning more than 10,000 contributions across multiple platforms like CoinGape, CoinSpeaker, Bitcoinist, Crypto News Flash, and others. Being a Fintech enthusiast, he loves reporting across Crypto, Blockchain, DeFi, Global Macros with a keen understanding in financial markets. 

He is committed to continuous learning and stays motivated by sharing the knowledge he acquires. In his free time, Bhushan enjoys reading thriller fiction novels and occasionally explores his culinary skills. Bhushan has a bachelors degree in electronics engineering, however, his interest in finance and economics drives him to crypto and blockchain.
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.