How the Global Economy Could Affect Bitcoin, Ethereum, and Crypto in 2022

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Source: Adobe / Travel mania

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Cryptoassets will benefit more from inflation than other assets. However, some economists expect inflation to slow down in 2022. Rising rates are not good for risky assets in general, and it can also include crypto. Falling bond yields may make crypto-assets more attractive in the long run next year.

The crypto market has had one of its best years on record, and it owes a lot to the global macroeconomic environment for it. With inflation rising and interest rates historically low, those of us fortunate enough to have savings have looked for a more profitable place than a bank account to hold them.

At the same time, institutional investors have also been guided by the same basic motivations to convert portions of their portfolios into crypto-assets, another big reason why we have seen many all-time highs throughout 2021. However, For 2022, economists and analysts say we could see inflation fears subside as the global economy stabilizes.

Analysts also expect interest rates to rise at some point next year, a factor that could reduce – at least to some extent – investor appetite for more speculative assets such as bitcoin. (BTC) and other crypto-assets. However, some analysts believe that the rate hikes will not be very large and that the broader appetite for crypto might be affected only slightly.

Inflation worries may subside sooner or later

Annual consumer price inflation hit 6.2% in October in the United States, the highest rate in 30 years. Coupled with the fact that the Federal Reserve’s interest rate is effectively 0%, this means that people in the United States – as we see elsewhere as well – are effectively subject to negative interest rates.

Dollars (and euros, pounds, etc.) therefore lost their purchasing power, so anyone with excess money sought to convert it into something more value-preserving. This is basically what analysts speaking with Cryptonews.com predicted last year for 2021, and it explains much of the heat we have seen in the crypto markets this year.

“I see inflationary pressures continuing until 2022. The spillover effects of pandemic policies, budgetary largesse via stimulus controls and an extremely expansionary monetary policy are at work; genius is not that easy to put back into the bottle, ”said Pete Earle, an economist at the American Institute for Economic Research.

Earle suggests that cryptoassets will benefit more from inflation than other assets, if only because they are more readily available to the public. That said, some economists expect inflation to slow down in 2022.

“I don’t think the economic recovery is strong enough for price pressures to continue to increase in 2022,” said Fawad Razaqzada, analyst at ThinkMarkets.

For Razaqzada, one of the main drivers of lower inflation will be oil prices, which tend to be correlated with macroeconomic cycles.

“I think oil prices will come back down as supply increases from the OPEC + group and producers elsewhere, including the United States. The potential return of Iranian oil supplies could still weigh on crude prices, ”he told Cryptonews.com.

Meanwhile, the impact of temporary factors and supply issues that drove prices up (as the world emerged from the coronavirus pandemic) is also likely to ease, Razaqzada adds.

Bloomberg Intelligence analyst Mike McGlone also suspects inflation will subside soon enough.

“Moribund gold and falling US Treasury bond yields are the main indicators that the rebound in inflation in 2021 is failing in the predominant deflationary trends, not least due to rapid technological change,” he told Cryptonews.com.

While few analysts believe inflation will be seriously bad next year, some say we may continue to see a mixed picture, with conflicting forces affecting the overall outlook.

“On the one hand, we have global supply chain issues resulting in higher prices and difficult employment conditions resulting in wage increases. On the other hand, we have the longer-term disinflationary impact of technological improvements. […] and there is also the demographic impact of an aging population, which will also lower prices, ”said Glen Goodman, author of The Crypto Trader.

Although he admits things will be mixed, Goodman tells Cryptonews.com he remains “very concerned” about inflation over the next few years, and particularly worried that central banks “are not tackling it effectively. “.

However, even if inflation doesn’t end up being seriously bad in 2022, some observers say bitcoin’s status as a hedge will continue to be cemented next year.

“I see crypto-assets, especially Bitcoin, less as a hedge against inflation now, but on the verge of it. Bitcoin is in the price discovery phase to achieve global digital collateral status in a digital world, ”said Mike McGlone.

Interest rate = go up?

Fawad Razaqzada notes that, if we assume that at least part of the reason for the 2021 crypto rally was for inflation hedging purposes, then this source of influence will no longer be there to support prices in 2022. Likewise, we can also see interest rates increasing in a way that makes cryptoassets a little less attractive.

“If inflation turns out to be hotter and stickier than expected, then the big central banks will surely have to tighten their belts more aggressively in 2022. The rate hike is not good for risky assets in general, and it can also include crypto, ”Razaqzada said.

Mike McGlone also expects interest rates to rise to some extent in 2022, although the effect on the crypto market may again be mixed.

“Central banks will try to wean QE off [quantitive easing] and low rates, until the stock market wobbles or drops about 10% and stays low for a while, and the prospect of cutting or tightening will disappear, in my opinion. It’s not deep, it’s the persistent trend, ”he said.

At the same time, McGlone suspects that a fall in the stock market – caused in part by rising rates – could lead to negative U.S. bond yields.

“It’s good for bitcoin and ethereum, but extreme speculative excesses should be a headwind for the broader crypto market. Bitcoin is likely to go down early, if the stock market does, but I see the top three Crypto Musketeers (bitcoin, ethereum and crypto dollars) come out on top, ”he explained.

It should be noted that the Bank of England defied expectations in early November and kept the UK base rate at 0.1%. This was largely out of fear of slowing the economic recovery from the COVID-19 pandemic, and it’s a concern we may see next year as other central banks oppose too rapid a rate hike. .

“I expect central banks to raise interest rates eventually, but it will probably be too little, too late. This can be positive for cryptocurrencies, as riskier assets tend to benefit from an inflationary environment and low interest rates, ”said Glen Goodman.

Other macroeconomic factors

Inflation and interest rates tend to be the two major macroeconomic indicators of the growth of the crypto market. However, there are a few others, with growth (or not) in employment and the economy in general to watch as well.

“When the economy is doing well and employment is high, individuals and institutions are more likely to invest in financial markets, including crypto, than during an economic downturn. Therefore, it is worth watching these macroeconomic trends in the months and years to come if you are a long-term buy and hold type investor, ”said Fawad Razaqzada.

Mike McGlone also advises investors to watch the (US) stock market, while once again noting that falling bond yields could make crypto-assets more attractive over the long term next year.

He says, “A wobble in the US stock market and the potential for the stock market to start to underperform should ultimately be quite bullish for bitcoin and, to a lesser extent, ethereum. […] I see major potential macro development in 2022, with US bond yields resuming the sustained downtrend (almost 40 years) and bitcoin remaining above $ 100,000. Compliance and competition

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