British bond market on the brink of collapse

29.09.22 04:13 AM By Stormrake

The GILT market was in huge trouble yesterday night and the Bank of England had to step in with 65 billion pound bailout. Unfortunately, this is yet again at the expense of the taxpayer. This may just be the catalyst to catapult Bitcoin into a new narrative.

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

UK bonds trading like a low tier altcoin

The global bond market is a tricky beast to understand let alone successfully trade. Most investors should understand the implications that bonds and their signals provide, to the assets they hold. After all, our entire economy runs on debt so understanding its implications is important. In short, a fiscally loose budget was leaked from the UK government which then caused a rout on UK bonds, it was exacerbated as pensions funds were highly levered on these instruments. The trade they were deploying was essentially - buy long dated UK bonds, use them as collateral to buy more long dated UK bonds on margin, rinse and repeat. To avoid a complete financial meltdown and evisceration of the UK economy, the BoE stepped in with the money printer and decided to let it rip to prop up these pension funds. Unfortunately, this yet again means the taxpayer foots the bill of financial chicanery. We remain optimistic that this will ultimately lead to Bitcoin being used as an opt-out from an outdated system.

Bitcoin is a safe haven

Now we don't have to speculate on Bitcoin inflows amid the swelling currency crisis plaguing the Euro and the Pound, Messari has already put together a handy infographic. This shows record breaking volume for the BTC/GBP and BTC/EUR pairings and is a possible indication of British and European citizens voting with their wallets. An exodus of this scale cannot be overlooked, especially as we're seeing it happen in the western world with highly financialized economies that depend on a debt ridden population. This is the exact reason that Bitcoin was built for. Bitcoin could be a means to exit the over-leveraged system to a form of money ruled by math rather than the whims of bureaucrats in boardrooms.

BTC/USD key levels

Our key level of $19.560 USD has now operated as a magnet during this incredibly tight range where BTC volatility has remained muted. For a strong move to the upside we first need to see a break of $20,554, should this occur a quick move to $21,761. A strong enough bid with enough momentum can have us clear the order book before meeting resistance at $22,794.
The downside scenario to keep in mind is a break of $18,549, which can then lead us to a retest of $17,647 and a likely print of new cycle lows.

ETH/USD key levels

Ethereum volatility and price action has become virtually non-existent. $1,333 USD remains a magnet and continues to provide a fair value point for traders to anchor their expectations. For a sustained move to the upside, we first need Bitcoin to move higher and should this occur, the first real test will be $1,422. A break of the overhead resistance of $1,422 can have us retesting $1,500. The downside risk for ETH remains very real, if it loses $1,241 then the likely next move down would be a stress test of $1,111.

US interest rates sets the pace

US 10Y yield to the US 2Y yield still remains deeply inverted, currently sitting on 38 bps spread. The other issue interest rate differential worth watching is between the FED funds rate and the US 10Y yield which currently sits at 51 bps spread. Watching these rates will be critical for successfully calling the "FED pivot", as generally speaking the FED tends to cut rates when the benchmark rate exceed the US 10Y yield. At this time, this is when markets start to break in the TradFi world, for the above reasons mentioned in today's Morning Note would be a boon for Bitcoin.

No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

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