Although bitcoin will no longer function as an inflation hedge in 2021 and 2022, its limited supply could still attract more attention if inflation exceeds central bank targets.
The constant cryptocurrency winter and major crashes in the industry do not mean digital assets like Bitcoin
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According to a major European asset manager.
Paris-based investment manager Amundi said that while BTC may not protect investors from rising inflation in 2021 and 2022, bitcoin’s limited supply could attract more attention.
On March 2, Amundi’s Chief Investment Officer Vincent Mortier and macroeconomist Tristan Perrier published a thematic paper analyzing the state and prospects of the crypto market. The executives argued that Bitcoin has failed to serve as an inflation hedge over the past two years due to “sharp increases in policy and market interest rates” that have pressured “all asset classes.”
According to the paper’s authors, nominal interest rates may stop rising and may fall even if inflation is high or not rising. Such a situation could lead to a bull market for Bitcoin, investment executives at Amundi said:
“It’s a much more favorable environment for an asset with limited supply and a long principal because its main attraction is not its current status, but its future potential.”
Analysts also listed five reasons why recent setbacks in the crypto industry—the collapse of firms like FTX and Celsius—may not mean the end of cryptocurrencies.
The latest crisis is likely to bring realistic expectations from the industry and “separate the wheat from the chaff,” Amundi executives said. They compared cryptocurrencies to blue-chip technology stocks, which also experienced wild price drops before the rally. Analysts also noted that the current market decline is in line with historical bitcoin price cycles.
Mortier and Perrier noted Ethereum’s successful transition to the blockchain, highlighting the industry’s ability to reduce energy consumption. The executives also stressed that the crisis did not affect the core values of cryptocurrency, such as decentralization and the flexibility of transactions.
Another reason is that prominent companies in the financial and other industries do not stop fully expressing their interest in cryptocurrencies, and in 2022, heavyweights such as BlackRock will take over the circle.
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Ultimately, regulation could have a positive impact on the industry, analysts say. They emphasized that many regulators, after several attempts, have been reluctant to ban cryptocurrencies completely and that advanced economies are now considering this as an opportunity.
Despite being somewhat bullish on the future of cryptocurrencies, Amundi investment executives noted that the real economic benefits of cryptocurrencies “remain to be fully proven.” According to experts, this will require widespread use of public blockchains in the real economy and non-speculative demand.
