Bitcoin and gold have the upper hand over commodities for the next 10 years, says Bloomberg Intelligence

(Kitco News) The outlook for the rest of the decade favors Bitcoin and gold over commodities, Bloomberg Intelligence said, noting that the end of the Federal Reserve’s aggressive tightening is in sight.

“The most central banks in history have risen[d] prices with the world teetering on recession. Lower commodity and risk asset prices may be the only way out with deflationary implications, which should bolster the price of gold and its digital version, Bitcoin,” Bloomberg Intelligence senior commodities strategist Mike McGlone said.

Last week, the Federal Reserve raised interest rates by 75 basis points for the third time in a row. The big news from the updated statement was that the federal funds rate could rise to 4.4% by the end of this year and then rise to 4.6% in 2023. For markets, this likely means another 75 basis point hike in November and a further increase of 50 basis points in December.

And with the end of the tightening cycle more or less known, crypto may resume its bullish trend after this year’s big retracement.

“It’s been a bad decade for commodities and an exceptionally good one for Bitcoin, and 2022 could prove the cure of higher prices stronger than ever, favoring the crypto. With Federal Reserve tightening nearing the endgame, risk vs. reward may is tipped toward resuming Bitcoin’s sustained upward trajectory, especially relative to most commodities,” McGlone wrote.

Commodities and crypto began the year in opposite directions. As most commodities rose to new record highs, the crypto sector suffered significant losses. Bitcoin, for example, fell more than 70% from last year’s record high of $69,000.

But looking ahead, commodities are likely to continue to give up gains while Bitcoin, currently one of the most discounted assets, starts to rally, McGlone described.

“The all-time low crypto volatility vs. the Bloomberg Commodity Index (BCOM) could herald a resumption of Bitcoin’s propensity to outperform,” he said. “What is unique relative to commodities is that the 260-day volatility of the crypto is falling to new lows. If history is a guide, Bitcoin volatility is more likely to recover compared to commodities as the crypto moves towards new highs.” “

Meanwhile, commodities are likely to be weighed down by supply-demand fundamentals and the aftereffects of aggressive central bank tightening, McGlone added.

Looking at Bitcoin versus gold, Bloomberg Intelligence sees the former likely to outperform the latter in the long term, as it could move to become a “high-beta aversion to gold and US Treasuries,” the senior commodities strategist said. Also, Bitcoin’s increasing adoption versus its decreasing supply works in its favor.

“The emerging technology/asset is top competition to outperform [gold] long-term, pulling back to a good support zone,” McGlone said. “Bitcoin-to-gold ratio of about 10x, which was first reached in 2017. In a world that is rapidly going digital, the benchmark crypto is a top contender for old gold.”