How can the global economy affect Bitcoin, Ethereum, and cryptos in 2022?

The cryptocurrency market had one of the best years in its history in 2021, due to global macroeconomic conditions. 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.

The same motivations have led institutional investors to convert part of their portfolios into crypto-assets, which is the source of many historic highs. However, for 2022, economists believe inflationary fears will subside as the global economy stabilizes.

Analysts also expect to see an interest rate hike at some point next year, a factor that could depress – at least to some extent – investor appetite for more speculative assets like Bitcoin. (BTC). However, some analysts believe that the rate hikes will not be very large, and that the growing interest in cryptocurrencies may be affected only slightly.

A reduction in fears related to inflation

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

“I see inflationary pressures continuing into 2022. The spillover effects of policies linked to the pandemic, fiscal largesse via stimulus checks and a tremendously expansionary monetary policy are at work; the genius is not 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 cool down in 2022.

“I don’t think the economic recovery is so strong that the pressure on prices will continue to increase in 2022,” said Fawad Razaqzada , analyst at ThinkMarkets .

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

“I think oil prices will fall again due to the increased supply, both from the OPEC + group and from other producers, including the United States. The potential return of supply Iranian oil could weigh more heavily on crude prices, ”he told .

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

Bloomberg Intelligence analyst Mike McGlone also believes inflation will subside fairly quickly.

“Moribund gold and falling US Treasury bond yields are the main indicators that the rebound in inflation in 2021 is only a jerk in the prevailing deflationary trends, especially given the rapid progress of inflation. technology, ”

Yet some analysts predict a mixed picture, with competing forces affecting the overall outlook.

“On the one hand, we have global supply chain issues causing higher prices and tense employment conditions leading to higher wages. On the other hand, we have the longer-term disinflationary impact. 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 .

Goodman tells that he remains “very worried” about inflation in the years to come, and particularly worried that central banks “are not tackling it effectively.”

However, even if inflation doesn’t end up being seriously bad in 2022, most observers expect Bitcoin’s hedging status to continue to be cemented next year.

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

A rise in interest rates?

Fawad Razaqzada notes that, if as assumed, part of the strong crypto rise of 2021 is due to the use of cryptoassets as a hedge against inflation, then this source of influence will no longer be there to support prices in 2022. Likewise, interest rates could rise, making crypto-assets a little less attractive.

If inflation turns out to be more stubborn than expected, central banks will surely need to tighten their belts more aggressively in 2022. Rising rates are not good for risky assets in general, and this may 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 could once again be mixed.

“Central banks will try to wean off QE [quantitative easing] and low rates, until the stock market wobbles or actually falls by around 10% and stays down for a while, and the outlook for reduction or tightening will be gone, in my opinion, he said.

McGlone also suspects that a fall in the stock market – caused in part by rising rates – could cause U.S. bond yields to fall.

“This is fine for Bitcoin and Ethereum, but extreme speculative excesses should be a headwind for the crypto market as a whole. Bitcoin is likely to decline initially, following a decline in the stock market, but Bitcoin , Ethereum and crypto-dollars will be the winners, ” he explained.

It should be noted that the Bank of England has defied expectations at the beginning of November by holding the base rate of the UK 0.1%. This move was made largely out of fear of stifling the economic recovery from the COVID-19 pandemic, and it’s a concern we could find again next year, with other central banks loath to hike rates in such a way. too brutal.

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

Other macroeconomic factors

Inflation and interest rates tend to be the two major macroeconomic indicators of crypto market growth. However, other indicators, such as the growth (or not) of employment and the economy in general, also need to be monitored.

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

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:

“A fluctuation in the US stock market, and the possibility that the stock market will start to underperform, should ultimately be bullish for Bitcoin and, to a lesser extent, for Ethereum […] I see potential macroeconomic development primary in 2022, with US bond yields resuming the sustained downtrend (almost 40 years) and bitcoin remaining above $ 100,000. “