Long Duration Treasury Bills Signal Tightening Liquidity Conditions: Why Bitcoin is Stumbling

The recent drop in Bitcoin prices has left many investors scratching their heads, with some attributing the decline to fears over escalating tensions in the Middle East. However, according to crypto hedge fund Lekker Capital, the real culprit behind Bitcoin’s stumble may be the tightening liquidity conditions in the market.

Long duration Treasury bills are signaling that liquidity conditions are tightening, as demand for longer duration bonds is falling off due to higher than expected economic growth, inflation, and inflation volatility. This has led to a rise in Treasury yields, putting pressure on financial conditions and reducing liquidity in the market.

Quinn Thompson, founder of Lekker Capital, believes that the tightening liquidity environment could trigger a crisis similar to the US regional bank collapse last spring. This has led fund managers to be more cautious with their investments, reducing their appetite for risky assets like Bitcoin and other cryptocurrencies.

Thompson emphasized that Bitcoin trades at the “tip of the spear” for liquidity conditions, meaning that it reacts quickly to changes in liquidity compared to traditional equities. This could explain why Bitcoin has been stagnant for the past month, while major indexes like the S&P 500, Nasdaq, and Dow Jones have only recently started to slide.

As investors wait to see how governments and policymakers respond to the tightening liquidity conditions, all eyes will be on the upcoming Federal Open Market Committee and Quarterly Refunding Announcement scheduled for May 1. In the meantime, Bitcoin has fallen about 2.2% today to reach $62,344, while Ethereum has declined 1.9% to $3,026.

For more insights on Bitcoin and bonds, reach out to DL News markets correspondent Tom Carreras at tcarreras@dlnews.com. Stay tuned for updates on this developing story.