Bitcoin could outperform stocks in 2022 amid Fed tightening


January 8, 2022
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Bloomberg commodity strategist Mike McGlone said the Fed's signal of tighter monetary policy in 2022 could have a short-term headwind for risky assets like stocks and cryptocurrencies, but there's still a good chance bitcoin will stand out as investors recognize its value as a digital reserve asset.

Bloomberg's January edition of Crypto Outlook described the Fed's plan to raise interest rates in 2022 as a possible "win-win situation for bitcoin [vs.] stocks." That's because the S&P 500's rise above its 60-month moving average is the biggest in more than two decades, and Bitcoin is seeing increasing mainstream appeal as an inflation hedge.

"Tight markets have become common, but commodities and bitcoin seem to be the early leaders of the comeback," McGlone said. It's a question of how long the bull market will last, and we think benchmark cryptocurrencies will lead."

Minutes from the Fed's December policy meeting on Wednesday showed central bank officials were prepared to aggressively rein in stimulus more quickly than previously thought. At least the current plan includes raising interest rates three times in 2022 while shrinking the Fed's balance sheet, which currently holds nearly $8.3 trillion in Treasurys and mortgage-backed securities.

Markets may overreact in the short term, but it is hard to overestimate how hawkish the Fed minutes were.

Tapering plus three rate hikes are fine, but three rate hikes plus accelerated quantitative tightening are not on anyone's radar.

-- Alex Kruger (@KrugerMacro) January 6, 2022

While stimulus cuts are generally seen as negative for risky assets -- a broad category that includes stocks and cryptocurrencies -- McGlone believes bitcoin is uniquely positioned to outperform in this environment:
"Cryptocurrencies are the riskiest and speculative. If risky assets fall, that will help the Fed fight inflation. As a global reserve asset, Bitcoin could be the main beneficiary of that scenario."

In the broader cryptocurrency market, the Bloomberg analyst said he expects the "enduring triumvirate" -- namely bitcoin, Ethereum, and dollar-pegged Stabocoin -- to remain dominant throughout the year.

BTC/USD is in a clear downtrend, which accelerated after the FOMC minutes.