According to Bloomberg commodity strategist Mike McGlone, the Federal Reserve’s signaling for tighter monetary policy in 2022 may provide short-term headwinds for risk assets like stocks and cryptocurrency, but there’s a good chance that Bitcoin (BTC) will still come out on top as investors recognize its value as a digital reserve asset.
The Federal Reserve’s plan to raise interest rates in 2022 was described in the January edition of Bloomberg’s Crypto Outlook as a possible “win-win scenario for Bitcoin [versus] the stock market.” The reasons for this are that the S & P 500 Index is currently the most overextended above its 60-month moving average in over two decades, and Bitcoin is gaining popularity as an inflation hedge.
““Stretched markets are becoming more common,” McGlone said, “but commodities and Bitcoin appear to be early reversion leaders.” “It’s a matter of bull-market duration, and we believe the benchmark crypto will come out on top.”
On Wednesday, minutes from the Federal Reserve’s December policy meeting revealed that policymakers are prepared to aggressively reduce their stimulus support sooner than previously expected. At least for the time being, the plan calls for three rate hikes in 2022, as well as a reduction in the Fed’s balance sheet, which currently stands at nearly $8.3 trillion in Treasurys and mortgage-backed securities.
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Although stimulus reduction is usually considered negative for risk assets, a broad category that includes equities and cryptocurrencies, McGlone believes Bitcoin is in a unique position to outperform in this environment:
““Among the risky and speculative, cryptos are at the top. If risk assets fall in value, it aids the Fed’s fight against inflation. Bitcoin, as a global reserve asset, could be a big winner in that scenario.”
The “enduring trio” — Bitcoin, Ether (ETH), and dollar-pegged stablecoins — are expected to maintain dominance in the broader cryptocurrency market, according to the Bloomberg analyst.
Following the release of the Federal Open Market Committee meeting minutes on Wednesday, data from Cointelegraph Markets Pro and TradingView showed a sharp drop in the value of Bitcoin. For the first time since September, the flagship cryptocurrency has dropped below $43,000 and is currently down 8% in the last 24 hours.