The FOMC minutes on Wednesday showed that policymakers intend to intensify the fight against inflation in 2022.
The Federal Reserve’s signal to tighten monetary policy in 2022 could mean short-term headwinds for risky assets like equities and cryptocurrencies, but there’s a good chance Bitcoin (BTC) still has the upper hand as investors appreciate its value as a reserve digital asset. Bloomberg Commodities Strategist Mike McGlone.
In the January issue of Bloomberg’s Crypto Outlook, the Federal Reserve’s plan to raise interest rates in 2022 is described as a possible “win-win scenario for Bitcoin [versus] the stock market.” The reasons lie in the fact that the S&P 500 is currently the most overstretched from its 60-month moving average in more than two decades, and that bitcoin is becoming increasingly popular as an inflation hedge.
“Stretched markets have become commonplace, but commodities and bitcoin seem to be the leaders of the early reversal,” McGlone said. “It’s a matter of the duration of the bull market and we see the benchmark cryptocurrency come out on top.”
Minutes from the Federal Reserve’s December monetary policy meeting on Wednesday showed that central banks are poised to aggressively cut stimulus support faster than previously expected. The plan calls for three rate hikes in 2022, at least for now, accompanied by a reduction in the Fed’s balance sheet, which currently stands at almost $8.3 trillion in Treasuries and mortgage-backed securities.
While stimulus cuts are generally viewed as negative for risky assets, a broad category that includes equities and cryptocurrencies, McGlone believes Bitcoin is in a unique position to succeed in this environment:
“Cryptocurrencies are leading among risky and speculative instruments. When risky assets decline, it helps the Fed fight inflation. Bitcoin is becoming a global reserve asset and could be a key beneficiary in this scenario.”
In the broader crypto market, the “eternal trio,” namely Bitcoin, Ether (ETH) and dollar-pegged stablecoins, will remain dominating throughout the year, Bloomberg analyst expects.
BTC/USD is in a clear downtrend, which accelerated after the release of the FOMC minutes.
Data from Cointelegraph Markets Pro and TradingView showed that bitcoin dropped sharply in price on Wednesday after the release of the minutes of the meeting of the Federal Open Market Committee. The flagship cryptocurrency fell below $43,000 for the first time since September and is currently down 8% in the last 24 hours.