The Senate passed an updated $1.9 trillion stimulus package, which will be sent back to the House for approval. Markets continue to price in expected inflation as yields on debt instruments increase. Goldman Sachs, JPMorgan, and Citigroup are among the financial institutions warming up to Bitcoin recently.
Economic Indicators of Inflation Grow Stronger
Equity markets continue to see pullbacks during a volatile period of trading. Technology stocks experienced particularly large sell offs, before rebounding on Friday. Meanwhile, the United States is seeing markets begin to price in large amounts of anticipated inflation. Yields on low-risk debt instruments continue increasing as investors demand higher nominal returns. Inflation concerns were exacerbated as the Senate passed an updated $1.9 trillion stimulus package on Saturday, which is expected to be approved by the House. The bill excludes the minimum wage increases that were part of the original proposal, but includes direct payments to qualifying citizens and allocates funds to fighting COVID-19.
The United States is seeing some level of control over COVID-19, and many regions are beginning to lift COVID-related restrictions, resulting in a small increase in employment. Biden has stated an expectation that the U.S. “will have enough vaccines for every American by the end of May.” This updated timeline is largely a result of the FDA’s approval of Johnson & Johnson’s single dose vaccine. Globally, the effects of prolonged savings continue restructuring markets, with Germany’s two largest banks shifting to negative interest rates of 0.5% on deposits.
Indirect Bitcoin Exposure Affects Investors’ Returns
GBTC’s trading price reached a discount as low as 13% below the trust’s NAV. This represents a massive pullback from premiums, which at one point exceeded 40%. The excess volatility introduced by the trust has significantly undermined Bitcoin returns for shareholders in recent months. MicroStrategy has executed yet another Bitcoin purchase, with a dollar value of $10 million. The company’s share price has been tightly correlated with Bitcoin, however it represents a significant premium to the value of the Bitcoin held, and has experienced significantly more volatility than direct Bitcoin exposure. MicroStrategy shares are up 51% year-to-date, despite being down 49% from the highs set in early February.
Traditional Finance Acknowledges that Bitcoin Is Here to Stay
Goldman Sachs is set to restart its cryptocurrency trading desk this week, and will also facilitate the exchange of Bitcoin futures. The bank’s decision is the result of macro conditions for Bitcoin and strong enthusiasm from a sampled pool of notable clients. Separately, JPMorgan is warming up to the idea of including Bitcoin in a portfolio as a form of diversification and to drive high returns. A representative of the firm stated that “investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio.” Citigroup released an optimistic research report on Bitcoin, which included the idea that Bitcoin may “become the currency of choice for international trade.”
The $1.9 trillion stimulus package continues progressing, with final approval expected in the near future. Inflation concerns are mounting as markets begin to look towards an economy that will not be dominated by COVID-19. These market conditions are contributing to continued Bitcoin adoption among leading financial institutions.