How the global economy could affect Bitcoin, Ethereum and cryptocurrencies 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 is not good for risky assets in general, and this can include cryptocurrencies development 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 the global macroeconomic environment largely has that to thank. With rising inflation and historically low interest rates, those of us lucky enough to have savings have looked for somewhere more profitable than a bank account to store them.

At the same time, institutional investors have also been swayed by the same basic motivations to convert parts of their portfolios to crypto assets, another big reason we saw numerous all-time highs throughout 2021. By 2022, however, economists and analysts say we could see inflationary 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 hikes will not be very large, and that the general appetite for cryptocurrencies could be 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. Coupled with the fact that the Federal Reserve interest rate is effectively 0%, this means that people in the United States - as we see elsewhere as well - are effectively being subjected to negative interest rates.

Therefore, dollars (and euros, pounds, etc.) have been losing their purchasing power, so anyone with extra money on hand has sought to turn it into something that retains its value more. This is basically what analysts speaking to Cryptonews.com predicted last year for 2021, and it explains much of the heat we've seen in the crypto markets this year.

"I see that inflationary pressures will continue in 2022. The effects of pandemic policies, fiscal largesse through stimulus checks and a tremendously expansionary monetary policy are at work; the genie is not so easy to put back in the bottle," he 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 they are easier for the public to access. That said, some economists expect inflation to cool down in 2022.

"I don't think the economic recovery is strong enough that price pressures continue to rise in 2022," said Fawad Razaqzada, an analyst at ThinkMarkets.

For Razaqzada, one of the main drivers of the decline in inflation will be oil prices, which are often correlated with macroeconomic cycles.

"I believe that oil prices will fall again as supply increases both from the OPEC + group and from other producers, including the United States. The possible return of the supply of Iranian oil could further weigh down crude prices ," he told Cryptonews.com.

Meanwhile, the impact of temporary factors and supply problems that have raised prices (as the world emerges from the coronavirus pandemic) is likely to diminish as well, Razaqzada adds.

Bloomberg Intelligence analyst Mike McGlone also suspects inflation will ease soon.

" Dying gold and declining US Treasury yields are leading indicators that the 2021 rebound in inflation is a blink within the prevailing deflationary trends, especially given the rapid advance of technology, "he told Cryptonews.com.

Although few analysts estimate that inflation will be seriously negative next year, some say that we could continue to see a mixed picture, with contradictory forces affecting the overall outlook.

"On the one hand, we have the global supply chain problems that cause prices to rise and tight employment conditions that cause wage increases. On the other hand, we have the long-term disinflationary impact of technological improvements [.. .] and then there is the demographic impact of an aging population, which will also depress prices, "said Glen Goodman, author of The Crypto Trader.

Despite acknowledging that things will be mixed, Goodman tells Cryptonews.com that he remains "very concerned" about inflation in the coming years, and in particular that central banks are "not addressing it effectively."

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

"I see crypto assets, especially Bitcoin, less as a hedge of inflation now, but on the way to getting there. Bitcoin is in the price discovery phase to achieve global digital collateral status in a world that is goes digital, "said Mike McGlone.

Will interest rates rise again? Fawad Razaqzada points out that if we assume that at least part of the reason behind the rally in cryptocurrencies in 2021 has been inflation hedging, then this source of influence will no longer be there to support the prices in 2022. Likewise, it is possible that interest rates will rise in such a way that crypto assets are slightly less attractive.

"If inflation turns out to be hotter and stickier than expected, surely the major central banks will have to tighten their belts more aggressively in 2022. Rising rates are not good for risky assets in general, and this may also include cryptocurrencies, "Razaqzada said.

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

"Central banks will try to get rid of QE [quantitative easing] and low rates, until the stock market actually falters or falls around 10% and stays down for a while, and the prospects for reduction or tightening will go away, in my opinion. This is not deep, but has been the long-lasting trend, "he said.

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

"This is good for bitcoin and ethereum , but extreme speculative excesses should be a headwind for the crypto market as a whole. Bitcoin is likely to go down initially, if the stock market does, but I see the three major crypto musketeers (bitcoin, ethereum and crypto dollars) will come out ahead, "he explained.

It's worth noting that the Bank of England defied expectations in early November and kept the UK base rate where it was at 0.1%. This was primarily due to fear of stifling the economic recovery from the COVID-19 pandemic, and is a concern that we may see next year, with other central banks 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 developement, 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 the growth of the crypto market. 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 run. next year.

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