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Bonds and the Bitcoin Market



Listen to this episode: In this episode, “Bitcoin Bottom Line” hosts Steven McClurg and CJ Wilson met to discuss bonds and crypto. Wilson opened by asking McClurg what changes he has seen in the bond market. McClurg stated that when it comes to bond yields, the Federal Reserve is tightening and making it more expensive to borrow. More prominent institutional investors need to have a certain amount of their fixed income assets for safety; therefore, large institutions will lower yields for companies issuing debt that should fail. Sears and Toys “R” Us survived longer than they should have, while Nordstrom struggles to keep its doors open and can’t get credit to buy inventory. As the Fed begins to tighten, it is increasing the size of its balance sheet by continuing to extend higher purchasing growth. McClurg believes the market is finally starting to downgrade, but has failed to price in interest rates. This year, the Fed has named three types of rate hikes, meaning it will raise short-term interest rates. McClurg predicted that 10-year maturities to 188, which had previously fallen about 1%, will result in borderline company refinancing rates failing to pay their debt service; meaning they can’t afford the interest payment on their new debt, forcing them to constantly refinance. McClurg explained that the US Treasury Department is selling and buying the bonds. It spends debt to pay government spending, but no one else is buying it, so the Fed has to step in and buy it to keep interest rates low. If the Fed stops buying, it means there is an open market for government bonds, and debt and market pressures are pushing interest rates higher, pushing the debt on spending programs even higher. Wilson asked McClurg to service the love triangle between spending, borrowing and debt. When it comes to banks and borrowing, there is a Fed fund window. This window is the rate at which the Fed will lend to the bank overnight. The bank gets cheap money that it is supposed to lend to its customers for things like cars and mortgages. This has led to an increase in house prices. The bank’s price is spread based on its overnight lending window set by the Fed. McClurg believes that low mortgage prices will rise to three and three quarters, as much as 4%, which could be devastating for people. As interest rates get lower, insurance companies charge higher premiums to new customers to make up for the lack of returns they receive. If interest rates fall, premiums rise. Wilson wondered when bitcoin will be allowed in retirement plans or charitable funds. McClurg spoke about the risks individuals take when investing in bitcoin and other areas. McClurg has a long-term view when it comes to investing that not everyone has. Willson mentioned the value of looking five to ten years ahead when investing. Wilson discussed with McClurg whether Barry Bonds is a hall of famer. Wilson said America leads many countries when it comes to bonds and discusses degrading money around the world. McClurg stated that many countries are mixing with US production. Every country is forced to stick with the dollar, whether they degenerate or not. The biggest opportunity for China is to have a strong currency that will remain strong. There are different mindsets about Bitcoin depending on the location. The independence that comes with Bitcoin challenges authoritarian governments, which is why we need it. McClurg believes that people are generally more optimistic when markets are rising. Wilson said the best move is to review all the different things in your portfolio and ask if something would move 10% to 20% below you, will it affect you in such a way that you have to make a move before that happens? People have to decide whether to trade in or out of something. McClurg and Wilson ended the episode by saying that the bond market has spoken, patience is key, and when you’re in space, you need to build.
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