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Bitcoin's inflation-hedge theory challenged amidst market turbulence caused by rising interest rates

Bitcoin’s inflation-hedge theory challenged amidst market turbulence caused by rising interest rates

The recent losses on US Treasuries have surpassed $1.5 trillion, leading to turbulent markets. The US economy has been facing challenges, with inflation rising above the target rate set by the US Federal Reserve. These rate hikes have caused the significant decline in value of US Treasuries. This has raised concerns among investors about the impact on Bitcoin and other risk-on assets. The US Treasury’s increasing debt poses a risk of higher interest rates, which could further exacerbate losses for fixed-income investors. There is growing concern that the central bank’s policies may cause disruptions in the financial system. The rise in interest rates has already led to a drop in the Dow Jones Industrial Index and an increase in yields on US 10-year bonds. Banks, which rely on short-term borrowing and hold Treasuries as reserve assets, are particularly vulnerable in this environment. The Federal Reserve’s emergency loan program provides some relief, but does not eliminate the losses. Banks are offloading their holdings to private credit and hedge funds, potentially worsening the situation. As long as interest rates remain high, the risk of financial instability grows, which could benefit assets like Bitcoin. It is difficult to predict the timing or outcome of these events, but Bitcoin is seen as a potentially optimistic investment under these circumstances.

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