(Kitco News) With the crypto bull market proving quite resilient in 2021, money managers face a greater risk if they don’t have an allocation to crypto in 2022, according to Bloomberg Intelligence.
“Incentivized by China’s ban and the proliferation of revolutionary technologies such as crypto dollars and non-fungible tokens (NFTs), we expect the U.S. to embrace cryptocurrencies in 2022, with proper regulation and related bullish price implications,” Bloomberg Intelligence senior commodity strategist Mike McGlone said in the 2022 crypto outlook.
Continued adoption will sustain the crypto bull market next year, including getting through any potential corrections.
“Renewed impetus from the Federal Reserve to take away the punch bowl and declining bond yields may point to a macroeconomic environment in 2022 that favors top cryptocurrencies Bitcoin and Ethereum. Crypto assets showing divergent strength vs. equities near the end of 2021 may portend continued digital-asset outperformance in 2022,” McGlone noted.
Despite hitting new record highs of $69,000 in November, bitcoin is still in the price-discovery mode, which is why there is a lot of potential upside left. And the U.S. stock market volatility in 2022, which is likely to be triggered by the Federal Reserve’s monetary policy tightening, could work in favor of the cryptocurrency.
“Compared with broad equities, which haven’t had a 10% correction since the 2020 swoon, the crypto market may have a relative advantage in 2022. Cryptos are risk assets, but the primaries — Bitcoin and Ethereum — may be transitioning toward stores-of-value,” McGlone pointed out. “Diminishing supply is a key attribute shared by the top two cryptos.”
This fairly bullish outlook means that crypto naysayers might have no choice but to join the digital assets club unless they want to expose their portfolios to more risk, added the senior commodity strategist.
“Past performance is no indicator of future results, but when a new asset class outperforms incumbents, naysayers have little choice but to join in. We see this process playing a primary role in 2022, as money managers may face greater risks if they continue to have no portfolio allocations to cryptos,” he stated.
Bitcoin, ethereum price outlooks
On the question of whether bitcoin’s price peaked in 2021 or is just consolidating, McGlone replied that another rally is coming.
“We see the benchmark crypto well on its way to becoming global digital collateral in a world going that way. It’s likely to be about key support around $40,000 and $100,000 resistance in 2022,” he said.
Bitcoin’s current support level is $40,000, and its initial resistance is $70,000. Overall, bitcoin is on a path to hit $100,000 in 2022.
“We see it as more of a question of time, notably due to the economic basics of increasing demand vs. decreasing supply. There are ample examples of Bitcoin simply staying on course in 2022 of its process of adoption into the mainstream. U.S., Canadian and European exchange-traded funds and futures, migration into the 60/40 mix and legal-tender status in El Salvador point to a bull market in global adoption,” McGlone described.
Bloomberg Intelligence sees the bitcoin-gold ratio potentially stabilizing around 100x an ounce of gold.
“The crypto price could keep advancing relative to the metal, as 260-day Bitcoin volatility appears in early recovery from reaching the lowest ever vs. gold at the start of 2021. At the end of 2016, this relative risk measure formed a similar bottom, as the Bitcoin-to-gold ratio breached 1x resistance on the way to 10x at the end of 2017. A supply-reduction year (halving) is an additional factor that 2020 shared with 2016,” McGlone said.
Ethereum, the world’s second-biggest cryptocurrency, has been a top performer this year, and this trend is likely to continue in 2022, Bloomberg Intelligence’s outlook pointed out.
“Ethereum enters 2022 with rising adoption and declining supply while having withstood a substantial correction this year,” McGlone stated. “We see as a renewed bull market, on the back of the about 60% drawdown to the July low. The correction helped establish $4,000 as key resistance and $2,000 as support. What was resistance is now support, and $4,000 may act as the key pivot for 2022.”
This year, ethereum was able to prove how useful it is when it comes to the digital universe, including the non-fungible tokens (NFTs).
“Ethereum appears to be in the early days of becoming the collateral of the internet and is the epicenter of building the platform for DeFi, fintech and NFTs,” McGlone noted. “Most NFTs are denominated in Ethereum, which means an expanding ecosystem represents demand for ETH.”
Boosting the bullish outlook is ethereum’s diminishing supply following the August protocol update that started to remove coins from circulation.
“For the first time, the 52-week rate-of-change in the number of new Ethereum coins vs. the total outstanding is on track to drop below 4%. Demand for the No. 2 crypto is less straightforward, but supply may dip below that of Bitcoin, which fell under 2% this year,” McGlone noted. “According to Etherchain.org, about 630,000 ETH (roughly 50% of normal supply) have been removed since the start of August to Oct. 26, vs. the average monthly supply of about 410,000 since August 2020.”
Year-to-date, bitcoin is up 64.73% and ethereum is up 460.32%
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