- Monetary-policy moves could point to outperformance for crypto in 2022, according to Mike McGlone.
- McGlone is a senior commodity strategist at Bloomberg Intelligence.
- In a new report, he shares factors that could drive appreciation for three crypto assets in 2022.
Over the past 10 years, the average annual return from the US stock market has been about 14%, according to officialdata.org. That’s about 12 percentage points above the average annual return of the previous decade, which was about 1.65%.
The decadelong bull run has been extraordinary, but consensus is growing that those returns won’t last.
Just this week, David Solomon, the CEO of Goldman Sachs, said investors should expect lower returns over the next couple of years.
“I’m not a believer that double-digit equity returns compounding in perpetuity is something as an investor you should expect,” Solomon said on CNBC’s “Squawk Box.”
This aligns with the legendary investors Meb Faber of Cambria Investment Management and Ben Inker of GMO, who both shared similar perspectives with Insider.
But with the consensus also pointing to government-bond yields remaining low, where do investors put their money?
Across investment-bank and asset-manager outlooks, many are highlighting that 2022 will be the year of the stock picker, and investors can find success in a more challenged equity market with an active investing approach. Other solutions include branching into alternatives to find additional yield from hedge funds and private-equity strategies.
But Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, thinks crypto might be the alternative asset class to win out against both stocks and bonds next year.
“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,” McGlone said in a recent note. “Crypto assets showing divergent strength versus equities near the end of 2021 may portend continued digital-asset outperformance in 2022.”
2022 could be a bullish year for the two crypto bellwethers — bitcoin and ether — as well as stablecoins, which McGlone rebranded as “crypto dollars” in his most recent December note.
“We expect the US to embrace cryptocurrencies in 2022, with proper regulation and related bullish price implications,” McGlone said.
But what gives McGlone such confidence in crypto going forward, especially after a nearly 30% drop in the value of bitcoin last weekend?
McGlone puts it down to wider adoption of crypto over the past year and its ability to overcome “most wobbles,” such as the nearly 50% correction earlier this year when China banned crypto mining.
Now, with the Federal Reserve starting to tighten monetary policy, McGlone expects this will bring both a normalization in stock-market returns and a continued decline in US Treasury yields. This combination “may shine on” bitcoin and ethereum, he said.
Even if a reversal in tightening were to occur after a significant drop in the stock market, bitcoin could still win out, he said.
“Bitcoin will face initial headwinds if the stock market drops, but to the extent that declining equity prices pressure bond yields and incentivize more central-bank liquidity, the crypto may come out a primary beneficiary,” McGlone said.
If Treasurys struggle to hold above 2%, then there could once again be a transition to a more deflationary environment in 2022 that would favor bitcoin, he added.
He also doesn’t expect the fund-management industry’s adoption of crypto to stop in 2022, which is one of the key drivers for his bull case.
“Past performance is no indicator of future results, but when a new asset class outperforms incumbents, naysayers have little choice but to join in,” McGlone said. “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.”
This is an outlook shared by the traditional-finance veteran Matteo Perruccio, who now works as president of international for the $1 billion crypto asset manager Wave Financial. Perruccio is also in the camp that believes equity returns will normalize and bond yields will continue to disappoint.
This market environment, combined with further institutional adoption in crypto, should create significant upside in 2022 with bitcoin heading toward $125,000 by the end of next year, Perruccio said.
Crypto also has an advantage in terms of strength relative to the stock market.
“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,” McGlone said.
So if things look so bullish for 2022, who will be the winners? McGlone advises looking to the two benchmark cryptocurrencies and crypto dollars.
“Stalwart crypto dollars, along with bitcoin and ethereum, are poised to stay atop the ecosystem vs. about 15,000 rivals jockeying for speculative leadership,” McGlone said. “Binance Coin, solana and cardano have replaced XRP, bitcoin cash and chainlink near the top from a year ago.”
Looking to 2022, he thinks bitcoin is in the midst of a consolidating bull market, with key support sitting around $50,000 and resistance at $100,000 in 2022.
Ether appears to be in a more “enduring bull market,” he added, based on its outperformance after the launch of the first exchange-traded fund tracking bitcoin futures in the US.
The path to $100,000 for bitcoin in 2022 might not be so straightforward.
Perruccio noted that it still remains a volatile asset class and that he tells friends and families they shouldn’t risk what they can’t afford to lose in crypto. He’s confident that bitcoin isn’t going to zero because it is too big and too proven, but he could see it dropping to near $35,000 in some scenarios.
Meanwhile, the crypto trader Scott Melker told Insider that he believes the bull case for crypto could be renewed if it breaks key support at $53,000. But if bitcoin breaks below $42,000 and stays there for a period of time, it could mean an even steeper drop to $28,000.