A leading digital assets manager believes that a cloudy financial outlook for the United States could be bullish for Bitcoin (BTC).
In a series of posts, CoinShares explains how a confluence of economic factors and government policy decisions are likely to see Bitcoin’s performance diverge from other investment assets as the reality of a recession sets in.
“While we believe we are likely to see the US Federal Reserve continue to hike interest rates through the summer, we also believe they are likely to adopt a softer outlook on economic growth thereafter, prompting considerable dollar weakness.”
The firm anticipates BTC will rise if the Federal Reserve can’t curb inflation and the strength of the dollar wanes, noting that growth equities would suffer more in worsening economic conditions.
“We believe a policy mistake is highly likely, where Bitcoin prices are likely to diverge from growth equities, with the former likely to benefit from a dovish Fed and weaker US dollar, while the latter underperforming in the face of a recession or stagflation.”
CoinShares also says that while BTC hasn’t rallied despite the Fed raising interest rates four times this year alone, the king crypto might yet reward investors.
“Although Bitcoin’s price performance has been weak in the face of an aggressive Fed, this current hiatus in price performance may be short-lived.”
The latest insights come two months after CoinShares discussed at length how a recession would impact Bitcoin’s price outlook.
At the time, the firm also called attention to the price of oil and recent turmoil in the crypto markets while gauging how interest rate increases and US dollar strength affected BTC’s valuation.
“Bitcoin now has a well-established inverse correlation to the US dollar.
This makes sense due to its emerging store of value characteristics, but it also makes it incredibly sensitive to interest rates.
Bitcoin’s correlation to gold has declined while it has risen significantly when correlated against equities, particularly interest rate sensitive equities such as growth stocks.”
CoinShares also referred to Bitcoin as “both a growth asset and an emerging store of value,” and thus predicted that comparative similarities to equities would decrease over time.
The analysis concludes,
“Sadly, we believe that the US and the rest of the world are likely to slip into economic decline in 2023, although there are many unknowns. Perhaps it will be stagflation which then progresses into recession? As the liquidity trap really takes grip on central bankers, we believe Bitcoin is a good insurance policy in the face of this monetary policy mess.”
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