(CTN News) – The price of Bitcoin (BTC) and Wall Street’s benchmark equity index, the S&P 500, both seem to be on track to end the third quarter in the red as a key metric shows the case for investing in bonds over stocks and risk assets in general is stronger than at any point since 2009.
Based on the market value of the top cryptocurrency by market cap, it is currently trading at $26,100, which represents a 14% decline over the last quarter, assuming losses continue through September 30th.
The S&P 500, which measures risk assets globally, including cryptocurrencies, was down nearly 3% for the third quarter as of Friday’s close of $4,320.05, the benchmark for risk assets worldwide, including cryptocurrencies.
In an analysis conducted by charting platform Trading View, the equity risk premium, which is the difference between the earnings yield of the S&P 500 and the yield on the 10-year U.S. Treasury note, has declined to -0.58, which is the lowest since 2009.
Since 2008, the spread has averaged around 3.5 points on a monthly basis.
The allure of investing in stocks and other risk assets has diminished considerably over the past few years, with safe-haven government bonds offering a relatively higher return than stocks.
Treasury securities are considered risk-free since they are backed by the United States government, which has never defaulted on its obligations. Thus, a 10-year yield is considered a benchmark risk-free rate of return against which other returns from other assets can be compared.
Similarly, the difference between the 10-year Treasury yield and the dividend yield of the S&P 500 presents a similar picture. Spreads have decreased to -2.87, the lowest level since July 2007.
There is also less incentive to invest in bitcoin when bond yields are high. Bitcoin proponents consider it a haven asset similar to digital gold, although historically, it has always been a pure play on liquidity, often acting as a lead indicator for stocks.
Alex McFarlane, co-founder of Keyring Network, stated on LinkedIn that Bitcoin is a non-yield bearing, risk-on asset. As such, it would be adversely affected by a high USD risk-free rate due to portfolio rebalancing.
“In order to trade BTC as an orthogonal portfolio component, we cannot ignore rates markets as long as BTC cannot offer a risk-free rate, which it is unable to do, as opposed to POS [Proof-of-Stake].” McFarlane concluded.
The S&P 500 earnings yield is calculated by dividing the earnings per share of the index’s component companies by the current index level. An investor investing in index companies is likely to receive a dividend yield as their basic return.
Money managers are able to evaluate the relative attractiveness of two assets based on the spread between the earnings yield and the bond yield.