Consider the hypothesis: deflation can replace inflation next year. Well, if that is the case, cryptocurrencies could prevail over other asset classes. This is the hypothesis based on Bloomberg Intelligence analyst Mike McGlone, who is optimistic about the outlook for Bitcoin and Ethereum in 2022.
Cryptos, the Fed, and the end of the game in 2022
McGlone published bullish cases for both Bitcoin and Ethereum in its December issue of Bloomberg’s Global Cryptocurrency Outlook. He expects the US to accept cryptocurrencies with adequate regulation and the associated bullish price impact by 2022. With the advent of revolutionary technologies like crypto dollars and non-fungible tokens (NFTs), the possibilities are endless.
It can be said that the current global financial system is going through difficult times. Mainly because of the COVID-19 pandemic. This leads to immediate disruption and paralyzes productivity. However, it has created a solid base for future money matters.
Many central banks began printing large amounts of fiat currency to alleviate some short-term troubles. Result? The inflation rates have risen to a level not reached in decades. In the US, the rate is over 6% – the highest level in almost 40 years.
National currencies such as the US dollar are slowly losing purchasing power.
“Prolonged stimulus from the Federal Reserve to clear the blow and falling bond yields could point to the macroeconomic environment in 2022 in favor of leading cryptocurrencies like Bitcoin and Ethereum.” The report adds.
Well, falling long-term US Treasury bond yields pointed to the risk that deflationary forces will resume in 2022.
(Background: The benchmark 10-year yield fell two basis points to 1.48% after soon climbing to 1.52%. The increase was mainly due to falling inflation expectations, with the interest rate even falling.) 10-year Capital fell four basis points to 2.45% real yields, or the interest rate on inflation-linked Treasury securities rose to over minus 1%.)
Crypto assets that show different strengths compared to stocks towards the end of 2021 could signal sustained performance of the digital asset until 2022. The report states:
“The main reason for the reversal of expectations for a tightening of the Federal Reserve in 2022 is a decline in the stock market, which could benefit bitcoin somewhat.”
Consider the graph below, which shows how the Fed is funding future prices for higher interest rates in 2022 for a full year.
Source: Bloomberg Intelligence
The Federal Reserve’s failed attempts to maintain the tightening cycle as shown above suggest that the US is “following Japan and Europe towards negative returns.”
Even so, BTC is still in pricing mode and is a risky asset and is rising with the wave of stocks.
“Bitcoin will have teething problems when the stock market falls, but as falling stock prices put pressure on bond yields and encourage more central bank liquidity, cryptocurrencies could become the main beneficiary.”
crossing
As mentioned earlier, long-term US Treasuries have consolidated below the 2% mark despite the broad consensus on higher yields.
“This could be an important indicator of a transition back to a more deflationary environment in 2022 in favor of Bitcoin.”
Looking at the chart below, US yields have fallen to negative levels. The upcoming digital reserve could be the most important highlight that you can benefit from.
Source: Bloomberg Intelligence
Looking at the graphic, the Senior Commodity Strategist notes:
“The funds have gradually moved away from the old analogue gold and towards Bitcoin and Ethereum. The 2022 question centers on reversing or accelerating these flows. As bond yields are falling, we will focus on bond yields. “
Portfolio Allocation Risk
According to McGlone, asset managers are now at “greater risk” of continuing to have a crypto-free portfolio, which shows that the Bloomberg Galaxy Crypto Index (BGCI) has risen 1200% since then, compared to 90% for the S&P 500 in 2019:
“Past performance is not an indicator of future results, but when a new asset class outperforms established companies, opponents have no choice but to interfere. We see this process playing a big role in 2022, as asset managers could be at greater risk if they continued to have no portfolio allocation to cryptocurrencies. ”
Here’s why: The graph shows a significant increase in crypto dollar market capitalization. It’s more than $ 130 billion.
Source: Bloomberg Intelligence
In general, “deflationary forces” will prevail over the next year and inflation will stop spreading around the world. This could help Bitcoin, even oil, and gold reach a significant milestone.
$ 100,000 #Bitcoin, $ 50 #Oil$ 2,000 #Yellow? Outlook for 2022 in 5 charts – Rising commodities and falling yields on long-term government bonds indicate the risk of a revival of deflationary forces in 2022, with Bitcoin and gold showing a positive split. pic.twitter.com/j3VNAOCwuz
– Mike McGlone (@ mikemcglone11) December 9, 2021
All in all, reports like this one are indeed somewhat optimistic in the face of mounting concerns about the digital asset market.