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Crypto Yields Are Surpassed By U.S. Government Debt In Current Macro

14 Sep 2022 By: Sudeep Saxena
Crypto Yields Are Su

Due to the current macroeconomic climate and the collapse of the cryptocurrency market, rates on digital assets have fallen below those of the most secure US government securities.

In addition to creating a poor perception of crypto lending, the collapse of the crypto hedge funds and lending players has put pressure on yields.

Rising interest rates are one of the Fed's monetary tightening strategies in response to skyrocketing inflation. Thus, yields and volumes have fallen in speculative markets like cryptocurrency. As a result, the profitable double-digit crypto yields are currently nonexistent.

Additionally, cryptocurrencies have yet to demonstrate their worth as a protection against inflation and market volatility. Instead, they are becoming more closely correlated with the erratic equity markets.

Be aware that cryptocurrencies operate differently from traditional markets, where declining yields may not necessarily indicate decreased risks for cryptocurrencies. Instead of risk sentiment, trade volumes determine yields in the cryptocurrency market. Investors are less inclined to purchase additional tokens to lend when yields are lower.

This may have a cascading impact that lowers demand and prices. Greater demand for Treasuries has sapped cryptocurrencies of liquidity, according to Sidney Powell, CEO of the cryptocurrency lending company Maple Finance.

DeFi TVL fails.

A crucial indicator of interest in yield-generating digital assets is the total value locked (TVL) in decentralised finance (DeFi). The TVL of the entire DeFi market has decreased to $60 billion as of this writing from its peak of $182 billion in December 2021.

The current climate is substantially different, according to Morgan Stanley's chief cross-asset strategist Andrew Sheets. The transition from a near-zero and negative rate environment to one where you can get over 3% on a triple A-rated T-bill that is insured by the US government has been an important cross-asset trend. This will affect how non-yielding assets like gold, some tech stocks, and cryptocurrencies perform.