‘Sell bonds, buy bitcoin,’ proclaimed a popular social media account last week, mirroring the sentiments of numerous cryptocurrency advocates. These individuals argue that the recent tariff-induced volatility in the U.S. Treasury market—a fundamental pillar of global finance—has exposed the fragility of the dollar-denominated monetary system. Yet, the data suggests that despite these claims, major institutions remain unconvinced.
As of Monday, the 11 U.S.-listed spot Bitcoin ETFs, often viewed as a barometer for institutional activity, are on track to experience the second-highest cumulative monthly outflow of over $800 million, per data from SoSoValue. This follows a record outflow of $3.56 billion in February and $767 million in March.
In stark contrast, the recent auction of three-month Treasury bills showcased substantial demand from institutional investors. According to data from CME, the U.S. Treasury successfully sold $80 billion in three-month bills, inking an interest rate of 4.225%, a slight uptick from the previous 4.175%. Additionally, $68 billion in six-month bills were sold at a slightly elevated interest rate of 4.06%.
The bid-to-cover ratio, which measures the number of bids received against the number of accepted bids, highlighted this institutional confidence. For the three-month bills, the ratio surged to 2.96 from 2.82, indicating that for every three-month bill offered, almost three times the number of bids were received. The ratio for the six-month bills also saw a marginal increase to 2.90 from 2.79.
This robust demand signifies that institutions regard U.S. debt as a safe haven. Treasury bills are recognized for their high liquidity and low risk, making them the favored option for collateral in the repo (repurchase agreement) market. In such transactions, a party sells T-bills or other securities to another, with an agreement to repurchase them later, thereby enabling the seller to obtain short-term funding.
During periods of economic uncertainty, institutions typically favor T-bills, seeking flexibility in their investments rather than committing to long-term positions.
The backdrop of President Donald Trump’s full-scale trade war against China and other significant trading partners has escalated uncertainty, creating a potential for abrupt disruptions in corporate earnings guidance on Wall Street. As reported by Inc, BofA’s three-month guidance ratio—a measurement of companies exceeding versus falling short of consensus guidance—has dropped to 0.4x, marking its lowest point since April 2020 and below the historical average of 0.8x.
Compounding these concerns, the likelihood of a U.S. recession has surged above 50% on prediction markets, particularly influenced by elevated yields in Japanese bonds, further complicating the landscape for risk assets.
In summary, while voices in the crypto sector advocate for a shift from bonds to Bitcoin amidst current economic uncertainties, the inclination of institutional investors towards U.S. Treasury bills highlights a fundamental risk-averse mentality that contrasts sharply with the enthusiastic outlook of cryptocurrency advocates.
