Bitcoin vs. Credit Spreads: Opportunity or the Next Macro Trap?

Actionable Market Insights

Why this report matters

Bitcoin and credit spreads are diverging, which market is wrong? Unlike the Bitcoin options market, where positioning and flows can shift rapidly, economic data tends to evolve much more slowly. Even during the early stages of the Global Financial Crisis, the warning signs emerged well before markets fully reacted.

When the Bear Stearns credit funds began to collapse in June/July 2007, and asset prices weakened throughout the summer, the underlying stress was already visible. Yet it was not until September that the Fed began cutting rates, and even then, it took months for markets to fully price what ultimately became the 2008 global financial crisis (GFC). Bitcoin itself would only be introduced shortly thereafter, emerging from that period of systemic stress.

This historical backdrop highlights why it is important not to ignore key (slow-moving) macroeconomic signals, even while focusing on shorter-term market opportunities. However, once the short-term opportunity has played out, the market may begin to refocus on the broader macro picture. Still, in the meantime, tactical positioning continues to pay off, with our “next crypto trade” idea gaining roughly +10% since our March 10 report.

In this report, we show how signals from credit spreads could have helped investors identify both the bottom of the previous Bitcoin bear market and the peak of the most recent cycle. We also explain the key indicators investors should be watching now.

Bitcoin (LHS) vs. US High Yield ETF HYG (RHS)