Bloomberg commodity strategist Mike McGlone said the Fed's signal of tightening monetary policy in 2022 could have short-term adverse effects on risky assets such as stocks and cryptocurrencies, but as investors recognize the value of Bitcoin as a digital reserve asset , Bitcoin still has a good chance to stand out.
The January edition of Bloomberg’s Crypto Outlook described the Fed’s plan to raise interest rates in 2022 as potentially “a win-win situation for Bitcoin [vs.] the stock market.” The reason is that the S&P 500's rise above its 60-month moving average is now the highest in more than 20 years, while Bitcoin, as an inflation hedge, is seeing more and more mainstream appeal.
McGlone said: "Terrible markets have become common, but commodities and bitcoin seem to be the leaders returning early. It's a question of how long the bull market lasts, and we think the benchmark cryptocurrency will lead."
Minutes of the Federal Reserve's December policy meeting on Wednesday showed central bankers are preparing to aggressively rein in stimulus faster than previously expected. The plan, at least for now, includes three rate hikes in 2022 while shrinking the Fed's balance sheet, which currently holds nearly $8.3 trillion in Treasurys and mortgage-backed securities.
Markets may be overreacting in the short term, but it's hard to overestimate how hawkish the Fed minutes were.
Tapering QE + 3 rate hikes is fine, but 3 rate hikes + accelerated QT is not on anyone's radar.
— Alex Krüger (@krugermacro) January 6, 2022
While stimulus cuts are generally viewed as negative for risky assets (a broad category including stocks and cryptocurrencies), McGlone believes that Bitcoin is uniquely positioned to outperform in this environment:
“Cryptocurrencies are the most risky and speculative. If risky assets fall, it will help the Fed fight inflation. Be a global reserve asset, and Bitcoin may be the main beneficiary in this situation.”
In the broader cryptocurrency market, the Bloomberg analyst said he expects the "enduring big three" -- namely bitcoin, ethereum and dollar-pegged stablecoins -- to maintain their dominance throughout this year.
BTC/USD is in a clear downtrend, which accelerated after the release of the Federal Open Market Committee (FOMC) minutes.
The value of bitcoin fell sharply on Wednesday following the release of the FOMC minutes, according to data from Cointelegraph Markets Pro and TradingView. The flagship cryptocurrency fell below $43,000 for the first time since September and is now down 8% in the past 24 hours.
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