What if deflation replaces inflation next year? In this case, cryptocurrencies could prevail over other asset classes. Based on this hypothesis, Bloomberg Intelligence analyst Mike McGlone is optimistic about the outlook for Bitcoin and ETH in 2022. According to him, “deflation” will take cryptocurrencies to new heights.

Analyst Mike McGlone

Crypto, Fed and 2022

In the December issue of Bloomberg’s Global Cryptocurrency Outlook, Mike McGlone announced bullish cases for both Bitcoin and ETH. He expects the US to introduce cryptocurrencies with adequate regulation in 2022, which will have a positive impact on prices. Thanks to the development of revolutionary technologies like cryptocurrencies and NFTs, the possibilities are endless.

The global financial system is going through tough times right now, largely due to the COVID-19 pandemic. It immediately disrupts and paralyzes productivity, although it has created a solid base for future currency problems.

Many central banks began printing large amounts of fiat money to limit short-term troubles. As a result, the inflation rate rose to a level not seen in decades. In the US, the rate is over 6% – the highest level in almost 40 years. Accordingly, national currencies such as the US dollar are gradually losing purchasing power.

“Attempts by the Federal Reserve to address the situation and falling bond yields point to the macroeconomic environment in 2022 in favor of leading cryptocurrencies like Bitcoin and ETH.”

Falling government bond yields suggest the risk of a deflationary rebound in 2022. Specifically, the 10-year benchmark yield fell 2 basis points to 1.48% after rising to 1.52%. The move was mainly driven by falling inflation expectations, with the 10-year inflation rate falling 4 basis points to 2.45%.

The strength of cryptocurrencies will be completely different from that of stocks towards the end of 2021, suggesting that the digital asset will continue to outperform in 2022.

“The important basis for changing the Fed’s forecast for monetary tightening in 2022 is the collapse of the equity markets. Bitcoin could benefit from this. ”

The graph below shows Fed funding after a year of future higher interest rates in 2022.

The source: Bloomberg Intelligence

The Fed’s failed attempts to maintain the tightening cycle signal that the US “will follow Japan and Europe on negative returns”.

It has to be said that Bitcoin is still in pricing mode and rising as a risky asset with the wave of stocks.

“Bitcoin will have great difficulty initially when the stock market falls, but as falling stock prices put pressure on bond yields and encourage more central bank liquidity, cryptocurrencies can benefit the most.”

crossing

As mentioned earlier, long-term US Treasuries are consolidating, despite much speculation on higher yields below the 2% mark.

“This could be an important indicator of a transition back to a more deflationary environment in 2022 in favor of Bitcoin.”

Note the chart below, US yields have fallen into negative territory. The coming digital reserves could be the biggest beneficiaries.

Source: Bloomberg Intelligence

Based on the graphic, the senior raw materials strategist determines:

“Funds gradually moved from gold to bitcoin and ETH. The question for 2022 is: will these flows reverse or accelerate? If yields fall, we expect an acceleration. ”

Portfolio allocation risk

According to McGlone, asset managers are now at “greater risk” of continuing to maintain a crypto-free portfolio.

“Past performance is not an indicator of future results, but when a new asset class outperforms an established provider, opponents have no choice but to interfere. We predict that this process will be very strong in 2022 as asset managers could be at greater risk if they continued to refrain from assigning portfolios in cryptocurrencies. ”

Because the market capitalization of crypto dollars increased significantly and reached more than 130 billion dollars according to the graphic below.

The source: Bloomberg Intelligence

In short, for the next year deflation will prevail and inflation will stop spreading around the world. This can help Bitcoin, even oil and gold, grow significantly.

All in all, reports like this one really do cause some optimism in the face of growing concerns about the digital asset market.

$ 100,000 #Bitcoin, $ 50 #Oil, $ 2,000 #Gold? Outlook for 2022 in 5 charts – commodity peaks and falling yields on long government bonds point to the risk of a revival of deflationary forces in 2022, with positive effects on Bitcoin and gold. pic.twitter.com/j3VNAOCwuz

– Mike McGlone (@ mikemcglone11) December 9, 2021

“Bitcoin $ 100,000, oil $ 50, gold $ 2,000? Outlook for 2022 in 5 charts – commodities rise and long-term treasury yields fall, point to the risk of a resurgence of deflation in 2022, which creates favorable conditions for Bitcoin and gold. “

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