US Dollar Surge Causes Pressure on Crypto Yields

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  • Rising interest rates contribute to the downfall of crypto yields.
  • Crypto yields have fallen below US government debt.
  • The total value locked in DeFi platforms dropped to $60 billion.

The rising trend in the value of the US dollar against other major currencies as a result of the Federal Reserve’s interest rate hike is raising the alarm about its effect on the global financial system as well as the macroeconomic conditions that are putting pressure on crypto yields, with digital asset yields tanking.

The downfall of crypto hedge funds and lending players has also contributed to negative sentiment toward crypto lending. As a result, yields and volumes have both declined.

According to a recent Bloomberg report, crypto yields have fallen below what the US government pays for three months borrowing, giving hedge funds that have flocked to the digital space even less reason to continue investing.

Jaime Baeza, chief executive officer of ANB Investments, points out:

Two years ago, interest rates in crypto were at least 10% and in the real world rates were either negative or near-zero. Now it’s almost the reverse, because yields in crypto have collapsed and central banks are raising rates.

Market conditions highlight the fact that digital assets are forming closer correlations to volatile equity markets instead of proving their merit as a hedge against inflation and market volatility.

“Higher appetite for Treasuries has sucked out liquidity from crypto,” says Sidney Powell, the chief executive of crypto lending company Maple Finance.

The total value locked in DeFi platforms reflects the current value of the assets and is an important indicator of investor interest in yield-generating DeFi assets. According to DeFiLlama data, the TVL dropped to $60 billion from a high of $182 billion in December last year.

Andrew Sheets, the chief cross-asset strategist at Morgan Stanley, commented: “A key cross-asset theme has been the shift from a near zero and negative rate environment to one where you can get over 3% on a triple A-rated T-bill that’s guaranteed by the US government. This will have an impact on the performance of assets with no yield such as gold, some tech stocks and crypto.”