First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

According to Bloomberg Galaxy Cypto Index (BGCI) data -

* Bitcoin price drops 19% in December 2021, up 29% for the year

* Ethereum price drops 20% in December 2021, up 228% for the year

Global risk asset prices could see further gains in 2022 as the Federal Reserve faces its worst inflation in 40 years, and Bitcoin could benefit in the process.

Among the speculative and risky asset classes, Bitcoin has the highest yield and is gradually developing into the "world's digital reserve asset". Bloomberg Intelligence expects Bitcoin, Ethereum and stablecoins to continue to dominate the crypto market, with Binance Coin and Solana likely to further cement their market leadership.

For the broader cryptocurrency industry, though, in 2022, the most important phrase to watch out for is “don’t fight the Fed.”

Risk assets vs. the Fed

In 2022, the bottom line for Bitcoin could be $30,000, while the bottom line for Ethereum could be $2,000. In 2021, Bloomberg Intelligence found that the market has maintained an upward trend in most cases. For example, the Bloomberg Galaxy Crypto Index has increased by about 150%. Of course, the crypto industry must pay attention to the tightening policy of the Federal Reserve. It may bear the brunt of the decline, while also having an impact on the cryptocurrency industry, but in general, Bitcoin will outperform the stock market.

Below: The crypto industry needs to pay attention to the Fed’s deflationary strategy in 2022

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

Bitcoin and Ethereum have solid foundations. After saying goodbye to 2021, Bitcoin price base may consolidate at $30,000, while Ethereum price base may consolidate at $2,000. Bloomberg Intelligence estimates that the two top cryptocurrencies will continue to maintain market leadership and continue to rise in 2022. Some people think that 2022 may also have the same risk-off sentiment in 2020, which may play a key support role for Bitcoin and Ethereum, but in fact this is unlikely. Bloomberg Intelligence believes that it is more likely that Bitcoin will head towards $100,000 while Ethereum will break the $5,000 resistance. One of the key issues is the Federal Reserve, which may be more inclined to raise rates if risk assets continue to climb as it faces the biggest inflation in four years

Cryptocurrencies are the first choice of risk-takers and speculators. If the price of risky assets falls, it means that the Fed has achieved some success in fighting inflation. In this case, Bitcoin may be the main beneficiary.

In 2022, Bitcoin could outperform stocks. The Fed's expected rate hike in 2022 may benefit both Bitcoin and the stock market. The chart below analyzes the 13th Fed Funds futures. In addition, the 60-month moving average of the S&P 500 is also high. Now the question is, how can the bull market Bitcoin, the benchmark cryptocurrency, seems to be in the lead for as long as it lasts.

Below: The biggest force preventing Fed tightening - wobbly stock market

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

If traditional economic rules also apply to the cryptocurrency market, the current market appears to be favorable for Bitcoin’s price increase. If the Fed returns to monetary easing, the most likely reason is that the stock market continues to fall, but once the Fed does so, it will also be good for digital currencies.

Treasury yields fell in the fourth quarter of 2021, which may point to a normalization of stock market returns in 2022. If the S&P 500 pulls back and stays down for a while, Bitcoin could see gains ahead of bonds and gold. But it’s important to note that of the three, bitcoin, bonds, and gold, bitcoin has the highest volatility. In early 2022, risk assets including bitcoin, bonds and gold could be affected by Fed policy.

Below: Cryptocurrencies may be an early market warning sign

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

Today, cryptocurrencies seem to be the first choice for investors in the speculative trading arena, so cryptocurrencies are already an early signal of a lower market. For example, Dogecoin and Shiba Inu’s peaks coincide very closely with market highs.

Crypto market fundamentals in 2022

In 2022, Bitcoin fundamentals depend on a hash reset in 2021. At present, Bitcoin has recovered from the collapse of computing power and price collapse in 2021. Overall, the fundamentals of Bitcoin in early 2022 are not bad. The price of Bitcoin on January 5, 2022 is about the same as the price of Bitcoin in February 2021, as Bloomberg Intelligence sees, the Bitcoin bull market is more consolidated and may resume its upward trajectory.

Will Bitcoin price rise 10x? In 2021, Bitcoin has withstood an unprecedented slump, and as the hashrate recovers, Bitcoin fundamentals do not appear to be affected much, thus helping to further consolidate price fundamentals in 2022. Here is a data analogy. In 2018, the 10-day average of Bitcoin’s computing power fell by 30%, when the price of Bitcoin bottomed out to the $3,000 range. According to Coinmetrics data, the computing power of the entire Bitcoin network will also increase by 50% in 2021. During the year, the price of Bitcoin fell from $60,000 to $30,000 range.

Below: Bitcoin falls to the $30,000 range in 2021, similar to the $3,000 drop in 2018.

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

However, similar to 2018, Bloomberg Intelligence believes that the collapse of the entire network's computing power in 2021 will further consolidate the price base of Bitcoin. At present, most of the Bitcoin mining activities have been transferred to the North American market, and most of the mining companies are listed companies, many of which prefer to hold Bitcoin rather than sell it. And those investors who invest in mining listed companies in the stock market are equivalent to indirect exposure to cryptocurrencies.

Investors are accumulating Bitcoin at an accelerated rate. In the digitized world, Bitcoin acts as the benchmark crypto asset due to its limited supply. Bitcoin Treasuries disclosed the holdings of Bitcoin by leading companies. Among the top five are listed technology companies such as Tesla and MicroStrategy, as well as mining machine companies. In 2021, crypto assets have completed a paradigm shift and the industry has become more mature.

Below: More and more public companies are adding Bitcoin to their portfolios

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

In 2021, there have been many challenges for Bitcoin, but in the end Bitcoin overcame the hurdles and gained a foothold.

Why does the Bitcoin bull run appear "complicated"? Frankly speaking, Bitcoin was originally a risky asset, but as the world changes, it is evolving into a digital reserve asset, thus positively affecting its price. It’s still early days. Bitcoin demand and adoption are rising, but supply is falling. The key question in early 2022 is whether bitcoin is too hot, and according to a Bloomberg Intelligence analysis chart, bitcoin should probably be reasonably priced above the 50-week moving average.

Below: Bitcoin still appears to have a relatively solid bull market.

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

The price of Bitcoin has risen a little faster over the past year. For now, Bitcoin should face resistance around $100,000, supported by favorable demand and supply fundamentals.

Three major crypto backbones - Bitcoin, Ethereum, USD

Bitcoin, Ethereum, and the U.S. dollar are the "Three Musketeers" in the crypto industry. Cryptoassets are a model of global free-market capitalism, and the biggest winner is the U.S. dollar. Mainstream bitcoin, ethereum, and stablecoins are expected to remain at the top of the crypto ecosystem if past patterns repeat themselves, but there are now roughly 16,000 competitors vying for speculative leadership. Compared to a year ago, Binance Coin and Solana replaced Litecoin and XRP as the top cryptocurrencies.

The three top cryptocurrencies are still: Bitcoin, Ethereum and Tether. Stablecoin issuance continues to increase, Bitcoin is becoming general collateral, and Ethereum is becoming a platform for DeFi, FinTech, and NFTs. According to Coinmarketcap data, the three top cryptocurrencies are still: Bitcoin, Ethereum and Tether. It is worth noting that the rapid increase in the issuance and popularity of stablecoins, of which Tether has always maintained its dominance, also shows the importance of the US dollar in the crypto ecosystem, especially the transaction demand of the US dollar exceeds that of all other fiat currencies. Trading volume.

Below: Tether, Ethereum and Bitcoin vs. 16,000 other cryptocurrencies

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

Few things can stop Bitcoin from becoming a global digital reserve asset, and Ethereum's status has not been shaken by the so-called "Ethereum killer." On the other hand, the number of cryptocurrencies has grown substantially in 2021, rising to 16,000 from around 8,000 a year ago.

Has anything changed in the top cryptocurrency ranks? According to Coinmarketcap data (pictured below), Litecoin and XRP were still the top five cryptocurrencies a year ago (pictured below), but a year later they fell to 22nd and 8th, respectively. This phenomenon shows that there is still a lot of speculation in the crypto market. Fortunately, the top three cryptocurrencies have not changed, and they are still Bitcoin, Ethereum and Tether.

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

Typical examples of speculative cryptocurrencies: Dogecoin in the first half of 2021 and Shiba Inu in the second half of 2021.

Stablecoins continue to expand. Stablecoin expansion does not appear to be slowing down, which is one of the main reasons why the entire digital asset market continues to appreciate. In addition, as technology develops faster and faster, stablecoins will also encounter regulatory constraints and market obstacles, which are normal phenomena.

Below: Among the top digital assets, stablecoins continue to maintain a bull market state

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

However, stablecoins will also encounter some challenges, such as central bank digital currencies. The chart above shows the stablecoin uptrend and how it compares to Bitcoin and Ethereum.

Bitcoin vs. Gold vs. Silver, Stocks

Bitcoin will disrupt gold just as gold disrupted silver. Bitcoin volatility is gradually decreasing compared to most asset classes, so we may see funds flowing out of gold and into cryptocurrencies like Bitcoin.

As an investment target, can Bitcoin replace gold? Bitcoin's impact on gold may be nearly as irreversible as gold's impact on silver. In 2017, the dollar value of bitcoin surpassed the value of an ounce of gold before people started taking bitcoin seriously, and the trend seems to be more and more durable. Charts from Bloomberg Intelligence chart an upward trajectory for the bitcoin-to-gold ratio in early 2022, which now stands at 25 times, compared with nearly 18 times a year ago. Apparently, gold appears to be being replaced by Bitcoin, with total gold holdings in exchange-traded funds down around 9% year-over-year as of January 5 — the numbers bear that out.

Below: Bitcoin beats gold, maybe it’s just a matter of time

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

Gold could rise to $2,000 an ounce in 2022, but Bitcoin should be able to rise even faster.

Compared to the stock market, Bitcoin still has the upper hand. Charts from Bloomberg Intelligence charting the upward trajectory of bitcoin’s price over the past year, compared to the Nasdaq 100 stock index, now that bitcoin’s volatility has begun to decline. In early 2022, Bitcoin’s 260-day volatility compared to Nasdaq volatility was around 4x, compared to around 12x in 2013 and 8x in 2017.

Below: Bitcoin is becoming less volatile compared to most assets

First Bloomberg Crypto Outlook 2022: Bitcoin may outperform stocks

With the Federal Reserve potentially facing its biggest inflationary crisis in four decades, Bitcoin’s relative risk indicator compared to stocks is likely to continue to decline.