Bitcoin and S&P 500 Headed for Third Quarter Losses as Bonds Outperform

Bitcoin (BTC) and the S&P 500 are both set to end the third quarter with losses, indicating a shift in investor sentiment towards bonds over stocks and other risk assets. The cryptocurrency has experienced a 14% decline in Q3, trading at around $26,100. Meanwhile, the S&P 500, which is considered the benchmark for risk assets, has seen a nearly 3% drop in the same period, closing at $4,320.05.

One key metric, the equity risk premium, reveals that the attractiveness of investing in stocks and risk assets has decreased, as it has fallen to its lowest level since 2009. The equity risk premium measures the gap between the earnings yield of the S&P 500 and the yield on 10-year Treasury notes. Historically, the spread has averaged around 3.5 points since 2008, highlighting how safe-haven government bonds are offering higher returns compared to other assets.

Government bonds, such as U.S. Treasury securities, are considered risk-free due to their backing by the United States government. Their yields serve as a benchmark risk-free rate of return against which other assets are evaluated. The declining spread between the S&P 500’s dividend yield and the 10-year Treasury yield provides further evidence of the diminishing allure of stocks, reaching its lowest level since July 2007.

As a result, the appeal of investing in bitcoin, often seen as a haven asset similar to digital gold, has also diminished. Alex McFarlane, co-founder of Keyring Network, explained that bitcoin is a non-yield bearing, risk-on asset. Therefore, it is adversely affected by high risk-free rates associated with U.S. Treasury yields.

The current trend suggests that investors are favoring the stability and higher returns offered by government bonds, which is reflected in the performance of both bitcoin and the S&P 500. However, it’s worth noting that bitcoin has historically acted as a leading indicator for the stock market, so its decline in Q3 may indicate potential shifts in overall market sentiment.

Sources:
– TradingView (charting platform)
– CoinDesk (cryptocurrency news platform)