How Global Economy Might Affect Bitcoin, Ethereum, and Crypto in 2022

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  • Crypto assets will benefit more from inflation than other assets.
  • However, some economists expect inflation to cool down in 2022.
  • Rising rates are not good for risky assets in general, and this can include cryptocurrencies as well.
  • Declining bond yields may make crypto assets more attractive in the long run next year.

The cryptocurrency market has had one of its best years on record, and you have the global macroeconomic environment to thank in a big way for this. With rising inflation and historically low interest rates, those of us lucky enough to have savings have looked for a more profitable place than a bank account to keep them.

At the same time, institutional investors have also been guided by the same basic motivations to convert parts of their portfolios to crypto assets, another big reason why we saw numerous all-time highs over the course of 2021. However, for 2022, economists and analysts say we can see inflation fears recede as the world economy stabilizes.

Analysts also expect to see interest rates rise sometime next year, a factor that may depress, at least to some extent, investors’ appetite for more speculative assets like bitcoin (BTC) and other crypto assets. However, some analysts estimate that the rate increases will not be very large and that the broader appetite for cryptocurrencies may be only slightly affected.

Concerns about inflation may disappear sooner or later

Annual consumer price inflation reached 6.2% in October in the United States, the highest rate in 30 years. Taken in conjunction with the fact that the Federal Reserve The interest rate is effectively 0%, this means that people in the United States, as we also see elsewhere, are effectively subject to negative interest rates.

So dollars (and euros, pounds, etc.) have been losing their purchasing power, so anyone with extra cash on hand has been looking to turn it into something that preserves value. This is basically what analysts talk about forecast last year for 2021, and it accounts for much of the heat we’ve seen in the cryptocurrency markets this year.

“I see that inflationary pressures will continue in 2022. The collateral effects of pandemic policies, fiscal largesse through stimulus controls and a tremendously expansionary monetary policy are at stake; genie is not that easy to put back in the bottle, “said Pete Earle, an economist at the American Institute for Economic Research.

Earle suggests that crypto assets will benefit more from inflation than other assets, if only because the public can access them more easily. That said, some economists expect inflation to cool down in 2022.

“I don’t think the economic recovery will be strong enough to keep price pressures rising in 2022,” said Fawad Razaqzada, analyst at ThinkMarkets.

For Razaqzada, a main factor behind the fall in inflation will be oil prices, which tend to be correlated with macroeconomic cycles.

“I think oil prices will go down again as supply increases so much OPEC + group and producers elsewhere, including the US The potential return of Iranian oil supply could weigh even more on crude prices, “he said.

Meanwhile, the impact of temporary factors and supply problems that have pushed prices up (as the world has emerged from the coronavirus pandemic) is also likely to lessen, Razaqzada adds.

Bloomberg Intelligence Analyst Mike McGlone also suspects that inflation will calm down soon.

“Dying gold and declining US Treasury yields are primary indicators that the 2021 rebound in inflation is a bump in the prevailing deflationary trends, largely thanks to the rapid advance in inflation. technology, “he said.

While few analysts estimate inflation will be seriously bad next year, some say we could still see a mixed picture, with conflicting forces affecting the overall outlook.

“On the one hand, we have problems in the global supply chain that cause rising prices and strict employment conditions that lead to wage increases. On the other hand, we have the long-term disinflationary impact of improvements in technology. […] and then there is the demographic impact of an aging population, which will also depress prices, “said Glen Goodman, author of The cryptocurrency trader.

Despite acknowledging that things will get mixed up, Goodman says that it remains “very concerned” about inflation in the coming years, and particularly concerned that central banks “will not address it effectively.”

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

“I see crypto assets, in particular Bitcoin, less as an inflation hedge now, but on the way to get there. Bitcoin is in the price discovery stage to achieve global digital assurance status in a world going digital, “said Mike McGlone.

Interest rates = will they go up again?

Fawad Razaqzada points out that if we assume that at least part of the reason behind the 2021 crypto rally has been for inflation hedging purposes, then this source of influence will no longer be there to support prices in 2022. Likewise, too we can see interest rates rise in such a way that crypto assets are a little less attractive.

“If inflation turns out to be higher and stiffer than expected, then surely the major central banks will have to tighten their belts more aggressively in 2022. Rising rates are not good for risk assets in general, and this can also include cryptocurrencies, “he said. Razaqzada.

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

“Central banks will try to get rid of QE [quantitive easing] and low rates, until the stock market falters or falls around 10% and holds for a while, and the downside or tightening prospects will disappear, in my opinion. This is not deep, it has been the enduring trend, “he said.

At the same time, McGlone suspects that a stock market crash, caused in part by a rate hike, may cause US bond yields to turn negative.

“This is good for bitcoin and ethereum, but extreme speculative excesses should be a hindrance to the broader crypto market. Bitcoin is likely to decline initially, if the stock market does, but I see that the top three crypto musketeers – bitcoin, ethereum, and crypto dollars – will come out ahead, “he explained.

It is worth noting that the Bank of england it defied expectations in early November and kept the UK base rate at 0.1%. This was mainly due to fear of stifling the economic recovery from the COVID-19 pandemic, and is a concern that we can see next year as other central banks are reluctant to raise rates too abruptly.

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

Other macroeconomic factors

Inflation and interest rates tend to be the two big macroeconomic indicators for crypto market growth. However, there are some others, whose growth (or not) in employment and the economy in general is also worth watching.

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

Mike McGlone also advises investors to keep an eye on the (US) stock market, while noting once again that declining bond yields may make crypto assets more attractive in the long term. next year.

He says: “A wobble in the US stock market and the potential for the stock market to start underperforming, should be quite bullish for bitcoin and to a lesser extent ethereum. […] I see a primary potential macroeconomic development in 2022, US bond yields will resume the long-lasting downtrend (nearly 40 years) and bitcoin will remain above $ 100,000. “
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