Consider the hypothesis: deflation could exchange inflation next year. Well, if this is the case, the cryptocurrency may prevail over other asset classes. This is the assumption on the basis of which Bloomberg Intelligence analyst Mike McGlone is optimistic about the prospects for Bitcoin and Ethereum in 2022. He says “deflationary forces” will push crypto assets to new levels. tops.
Cryptos, Fed, and the 2022 End Game
McGlone in his December edition of Bloomberg’s Global Cryptocurrency Outlook published bullish cases for both Bitcoin and Ethereum. He expects the U.S to embrace cryptocurrencies in 2022 with proper regulation and related bullish price implications. Given the proliferation of revolutionary technologies such as crypto dollars and non-fungible tokens (NFTs) – the possibilities are endless.
The current global financial system is going through difficult times, to say the least. Mainly because of the COVID-19 pandemic. This resulted in immediate disruption and crippled productivity. Although, builds a solid foundation for future monetary issues.
Numerous central banks started printing vast amounts of fiat currencies to alleviate some of the short-term pain. Result? the inflation rates have surged to unseen levels in decades. In the USA it stands at over 6% – the highest it has been in nearly 40 years.
National currencies, like the US dollar, are slowly losing their purchasing power.
“The Federal Reserve’s new impetus to withdraw the punch bowl, and lower bond yields may indicate a macroeconomic environment in 2022 that favors the major cryptocurrencies Bitcoin and Ethereum,” the report adds.
Well, the declining yield on the Treasury long bond did point to risks of reviving deflationary forces in 2022.
(Background: Benchmark 10-year yields fell two basis points to 1.48%, after initially rising to 1.52%. This development is mainly due to lower inflation expectations, 10-year breakeven slipping four basis points to 2.45 Real yields, or rates on inflation-protected Treasuries, were above minus 1%.)
Crypto assets show divergent strength versus equities near the end of 2021 may portend continued digital-asset out-performance in 2022. The report noted,
“One of the main forces in reversing expectations of Federal Reserve tightening in 2022 is a decline in the stock market, which can be a bit of a win-win for Bitcoin.”
Consider the graphics below that depicts the one-year-out Fed funds future pricing for higher rates in 2022.
The failed attempts, as noted above, by the Federal Reserve to maintain tightening cycles – hint at the United States “following Japan and Europe towards negative returns.”
Having said that, BTC remains in a price-discovery mode and is a risk asset, and has been rising with the equity tide.
“Bitcoin will face initial headwinds if the stock market goes down, but as falling stock prices put pressure on bond yields and spur more central bank liquidity, crypto may be the one. main beneficiary. “
Transition period
As mentioned above, U.S Treasury long bond has consolidated below the 2% mark despite widespread consensus for higher yields.
“This may be the main indicator of a transition to a more deflationary environment in 2022 favoring Bitcoin.”
Look at the graph below, the U.S yields have taken a downturn into negative territory. The upcoming digital reserve asset may be a top standout to benefit.
Looking at the chart, the senior commodities strategist said:
“Funds have moved away from old analog gold to Bitcoin and Ethereum. The question for 2022 concerns the reversal or acceleration of these flows. With bond yields falling, our bias is in favor of the latter. “
Portfolio allocations risks
According to McGlone, money managers are now facing “greater risks” by continuing to have portfolios without crypto, showing that Bloomberg Galaxy Crypto Index (BGCI) is up 1200% since 2019 versus 90% for the S&P 500:
“Past performance is no indicator of future results, but when a new asset class outperforms incumbents, opponents have no choice but to join us. have no crypto wallet allocation.
Here’s why: The graph showcases the immense rise of the crypto dollar market cap. It stands above $130 billion.
Globally, “deflationary forces” will prevail next year and inflation will stop spreading around the world. It could help Bitcoin, even oil and gold, to reach a significant level.
Overall, reports such as this-indeed injects some optimism amidst the growing concerns regarding the digital asset market.
