Global financial shifts point towards potential gains for Bitcoin due to increased demand for gold from central banks and significant inflows into US Treasury funds. While foreign central banks reduce holdings of Treasuries, gold reserves are at a 26-year high, paralleling Bitcoin’s rise during the 2020 pandemic. Institutional interest appears to be driving current demand, contrasting with historical retail-driven trends.
In a noteworthy shift within global finance, the demand for gold by central banks could ignite a surge in Bitcoin prices. Last week, US Treasury funds recorded a striking net inflow of $19 billion, a figure that surpasses the pandemic peak of $14 billion seen in 2020. The 4-week moving average also rose to $7 billion, marking the highest level since March 2023.
The 30-year US Treasury yield witnessed a decline of 30 basis points from its peak in April, signalling increased bond prices as investors pursue safety over higher returns. This push towards Treasury bonds enhances market stability and liquidity, while simultaneously lowering borrowing costs for the US.
In contrast, foreign central banks are pulling back, now holding just 23% of US government debt, the lowest share in 22 years. This suggests a shift in strategy, likely due to current tensions in trade relations with the US, with private investors driving recent inflows.
Meanwhile, gold’s position in global reserves has surged to 18%, a high not seen in 26 years, aided by China’s substantial increase in reserves which now sit at 7.1%. This trend of de-dollarization could favour Bitcoin’s position in the market.
Drawing parallels to the 2020 spike during the pandemic, Bitcoin climbed from $9,000 to almost $60,000 in early 2021. During that rise, gold’s share of global reserves increased by 14.5% in about 18 months. Today’s stabilising bond market and the gold acquisition by central banks point to a potential boost for Bitcoin’s market performance as well.
In 2023, Bitcoin gained 47% within a month amid rising Treasury yields and fears of a looming recession, even as tech-heavy Nasdaq saw an 8.7% drop. With yields now easing and a growing scepticism towards the US dollar, Bitcoin’s status as a global store of value has become increasingly attractive.
Yet, there are concerns that Bitcoin’s upward trajectory might stall if a recession takes hold in 2025. During economic downturns, investors tend to favour liquidity and traditional safe-haven assets over more speculative options like Bitcoin.
An analyst from Capital Flows has suggested that the current macroeconomic environment and positioning are pivotal for Bitcoin’s bullish potential. A recent report indicated that institutional influence is driving interest, rather than retail participation.
Bitwise CEO Hunter Horsley also noted that Google search activity for “Bitcoin” is presently at long-term lows, which indicates that the current rally is likely more about institutional and corporate investment rather than individual consumers. This contrasts sharply with historical trends where Bitcoin’s price correlated closely with search volume.
The dynamics of the market could be shifting, possibly indicating a paradigm of institutional adoption over retail speculation. In this evolving landscape, Bitcoin’s trajectory and value remain uncertain but compelling.
This article should not be construed as investment advice. All investments carry risk, thus readers should conduct thorough research before taking any action.
