Bitcoin bulls face challenges from interest rates and inflation

Bitcoin (BTC) has risen to 66020.94, sparking optimism in the market, with some analysts predicting a bull run surpassing last year's peak of 126000. However, analysis of BTC and Nasdaq valuations, adjusted for the U.S. 10-year yield (US10Y), indicates that bull runs may be more tempered. Both BTC/US10Y and Nasdaq/US10Y ratios have not surpassed their 2020-2021 highs, despite new record prices in the past year. This suggests that the true macro peaks for bitcoin and tech likely occurred in 2020-21. The divergence between nominal prices and yield-adjusted valuations could resolve in two ways: either interest rates drop, boosting these ratios, or asset prices decline to reflect structural weaknesses. The latter seems more probable due to hawkish comments from Fed officials hinting at potential interest rate hikes. Additionally, rising energy prices complicate the situation. Although bitcoin has bounced from 58000 to 66000, its ratio to WTI crude oil futures has decreased, indicating oil's stronger performance compared to risk assets. This suggests a potential wave of cost-push inflation. The conclusion is that achieving a sustained bull run may be more challenging than anticipated, and if oil prices continue to rise, a sharp adjustment in nominal prices may occur.

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