According to a sources report on September 13, cryptocurrency rates, which institutions normally seek out, have recently gone below what the US government pays to borrow money for three months.
The Federal Reserve's aggressive stance led interest rates to rise everywhere except in cryptocurrency. As a result, rates have fallen in line with volumes, and confidence has been eroded by the collapse of the Terra (LUNA) project and the bankruptcy of crypto lenders such as Celsius Network.
Jaime Baeza, CEO of ANB Investments, noted that “two years ago, interest rates in crypto were at least 10%. Meanwhile, rates in the real world were either negative or near zero. Now it's practically the opposite, as crypto rates have fallen while central banks are hiking interest rates.”
Crypto winter pressures market
This year's crypto winter has already called into question some of the asset class's most crucial assertions. This includes the notion of serving as a hedge against inflation and political turmoil.
Bitcoin, on the other hand, has been performing relatively well in comparison to stock benchmarks such as the S and P 500 and the Nasdaq. Although it has plummeted at a considerably faster rate. But it took some time before cryptocurrency rates equaled or even surpassed those of risk-free government debt.
Falling crypto yields, unlike in traditional markets, do not indicate lesser risk. Yields represent the rate at which an investor may profit by lending assets on exchanges and DeFi protocols or depositing them with crypto lenders, usually in the form of stablecoins.
Crypto yields
Crypto yields have no direct link to central bank rates, so they may decline even if borrowing prices rise due to Fed interest rate hikes. Lower returns deter investors from purchasing tokens to lend out, lowering demand and prices. According to some market analysts, this mismatch might lead to long-term stagnation in speculative assets.
The total value locked in markets where the majority of lending takes place — so-called DeFi platforms — is a key signal of investor interest in yield-generating crypto activities. This indicator has dropped to $60B from a high of $182B in December of the last year, according to sources statistics.
The recent commitment by Fed Chair Jerome Powell to maintain interest rates high for an extended period of time exacerbates this trend.
“Higher demand for Treasuries has drained liquidity from crypto,” according to Sidney Powell, CEO of crypto lending company Maple Finance.
Rather than investors flocking to Treasuries in quest of higher yields, the increase in rates offered for a given level of risk is driving a change in most financial markets.
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