Analyst: Bitcoin and Ethereum may be “primary beneficiaries” of Fed tightening and lower bond yields
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“Some normalization in stock-market returns and a continued decline in US Treasury bond yields may shine on Bitcoin and Ethereum in portfolios,” Mike McGlone wrote.
Fed’s expected tightening of the bond-buying program and interest rate hikes could present a macroeconomic environment likely to favour top cryptocurrencies in 2022, according to Bloomberg Intelligence’s senior commodity strategist Mike McGlone.
McGlone, writing in the December 2021 edition of the Bloomberg Crypto Outlook report, believes deflationary forces in the market could provide Bitcoin and other top crypto assets the impetus for fresh momentum.
According to the analyst, cryptocurrencies showing divergent strength versus equities as we move towards the end of the year will likely continue to outperform.
The bullish case for Bitcoin and Ethereum in 2022
McGlone’s bullish scenario for the benchmark cryptocurrency Bitcoin (BTC), and smart contract platform Ethereum's Ether (ETH), is outlined in the Global Cryptocurrency Outlook report, in which he notes that China’s ban on crypto has set up the sector for broader adoption in the US. He also believes the US could provide a regulatory environment that supports the industry, with further gains seen in price movements.
According to the analyst, the rapid growth witnessed around revolutionary crypto-related technologies like NFTs and crypto dollars could see a wider embrace in the US, developments likely to cement Bitcoin’s status as a digital store of value and see its value rise even further.
He points out the US Federal Reserve’s outlook on inflation and the potential for market pressure on bond yields as possible catalysts for central bank liquidity, and which in turn could see Bitcoin emerge as the “primary beneficiary.”
McGlone says Bitcoin could find itself in a “win-win” situation if the stock market drops as a result of a reversal to the Fed’s expected tightening in 2022 happens. He opines that BTC will likely run into headwinds should stocks plummet, but if this scenario leads to pressure in the bond market, fresh moves towards central-bank liquidity could temper gains in yields but benefit crypto.
$100,000 #Bitcoin, $50 #Oil, $2,000 #Gold? 2022 Outlook in 5 Charts – Peaking commodities and the declining yield on the Treasury long bond point to risks of reviving deflationary forces in 2022, with positive ramifications on Bitcoin and gold. pic.twitter.com/j3VNAOCwuz
— Mike McGlone (@mikemcglone11) December 9, 2021
“Some normalization in stock-market returns and a continued decline in US Treasury bond yields may shine on Bitcoin and Ethereum in portfolios,” the Bloomberg analyst wrote.
US Treasury yields have failed to break above the 2% threshold for nearly 20 months, with 10-year yields declining below 1.50% last week despite a hint of an uptick after a three-day string of gains.
The failure to break above 2% for the benchmark debt instrument comes “despite widespread consensus for higher yields,” and could be the main pointer towards a deflationary environment that will favour Bitcoin in 2022, according to the analyst.
While the strategist states that an asset’s past performance does not necessarily become an indicator of its future outlook, any massive outperformance by a new asset class is always followed by greater investment from earlier doubters.
It is this perspective that could play out in 2022, with investment managers looking to avoid the risk of missing out by bolstering their portfolios with crypto allocations.
Bitcoin currently trades around $48,845, about 24% down in the past 30 days and nearly 30% down from its all-time peak above $69,000. However, the BTC price is almost 160% up in the past year.
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