Why Bitcoin Is About To Dip To $ 12,000 As Fed Tightens Policy

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The Fed’s tightening is bad news for bitcoin, Stifel’s Barry Bannister said on Tuesday. He warned that the crypto could drop to $ 12,000. It is currently around $ 47,600. He said gold is better placed at the moment.

One of the main arguments made by bitcoin proponents in favor of cryptocurrency is that, with its limited supply, it is an alternative to inflation-sensitive fiat currencies like the US dollar or the euro.

Whether this is true or not, the asset has certainly hedged against inflation caused in part by the huge amount of money printed since the start of the pandemic, according to Stifel’s chief US equities strategist Barry. Banister. This is because bitcoin thrives in high liquidity environments. Since March 2020, it has increased by more than 800%.

So perhaps it’s ironic that inflation itself is likely to hurt bitcoin even more in the coming months, with the largest crypto having already fallen 28% since November 8 to $ 48,000.

With the Consumer Price Index, a leading measure of inflation, at its highest level in nearly 40 years – 6.8% year-on-year in November – the Federal Reserve announced on Wednesday afternoon that ‘she would start reducing her asset purchases twice as fast. he had planned. The central bank will cut its monthly purchases by $ 30 billion instead of $ 15 billion, from the $ 120 billion per month pace it maintained until November. He said he plans to hike interest rates three times in 2022.

These decisions will shrink the world’s dollar money supply, hurting bitcoin, Bannister said.

“Bitcoin has functioned as a high powered, liquidity-driven speculative asset. This chart shows that the slower year-over-year growth of the global M2 money supply is expected to push Bitcoin lower in the near term, this that’s my opinion, ”Bannister said in an email on Wednesday.

He continued, “With the Fed being the first to raise rates among the major central banks, the dollar has strengthened. The United States only accounts for about 21% of the world’s money supply, so the value of 79% Remaining world currency decreases in dollar terms because their currencies buy less dollars.

Below is the table of Bannister references.

Stifel

The chart was featured on Tuesday during Stifel’s 2022 Market Outlook webinar. During the presentation, Bannister also shared other indicators he is looking at that show bitcoin is on a tough road.

One is the rise in the risk premium of stocks as stock valuations start to decline. The equity risk premium is the return that stock market investors earn above a yield on 10-year Treasury bonds, which is considered risk-free. As interest rates rise and stock valuations appear to be starting to level off after skyrocketing since March 2020, the risk premium on equities is currently increasing (as stock valuations fall, the prospects for better future returns s ‘improve).

This has always been bad news for the evolution of bitcoin prices. When the risk premium of stocks rises, the price of bitcoin appears to fall.

Stifel

While this environment tends to be bad for bitcoin, it tends to be good for gold. Below is the same chart for gold. It shows that the price of the precious metal increases when the risk premium of the stocks increases.

“We observe that Crypto is hedging excessive growth in the global money supply (worryingly for Bitcoin, the growth rates of the global money supply peaked in March 2021) and that bitcoin is a high octane speculative asset. in a risky stock market with a rising P / E ratio, ”Bannister said in Stifel’s 2022 outlook note. “In contrast, gold is a better hedge for risk-free stock markets (which have a rising equity risk premium, such as a falling P / E ratio) and gold is doing well during the crackdown on stocks. Treasury yields by central banks which lowers the real (after inflation) despite rising inflation. “

Stifel

Bannister also measured the performance of bitcoin against gold and found that it remained within two standard deviations of its polynomial trend, or curved trend. Bitcoin’s data is turned into a log, adjusting for its asymmetric price action against gold.

Based on its current position on the trendline, bitcoin’s decline is around $ 12,000 and its rise is almost $ 134,000.

Stifel

Given that the current environment is set for the success of gold instead of bitcoin, Bannister warned of a potentially volatile period ahead for cryptocurrency.

“Its fair value, if you consider the trend to be at fair value, is actually $ 27,000,” Bannister said during the webinar. “But as the old saw on Wall Street says, fair value is what you pass on your way from more to undervalued and from undervalued to overvalued. Fair value only lasts a day or two.”

He added: “In an inflationary crisis, I think bitcoin would drop to $ 12,000. It would collapse. It would be here, the green line support, like it was here 2020, it was here 2019, and it was here throughout most of the 15’s, 16’s, and 17’s. “

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