Bitcoin (BTC) likely to pull off disbelief rally in face of economic recession, according to CoinShares
A leading digital asset manager believes that a cloudy economic outlook for the US could be positive for Bitcoin (BTC).
In a series of posts, CoinShares explains how a confluence of economic factors and government policy decisions is likely to see Bitcoin’s performance diverge from other investment assets when the reality of a recession sets in.
“While we think we are likely to see the US Federal Reserve continue to raise interest rates through the summer, we also think they are likely to take a softer view on economic growth thereafter, leading to significant weakness in the dollar.”
The firm expects BTC to rise if the Federal Reserve is unable to curb inflation and the strength of the dollar wanes, notes that growth stocks would suffer more in worsening economic conditions.
“We think a policy failure is highly likely, with Bitcoin prices likely to diverge from growth stocks, with the former likely to benefit from a dovish Fed and weaker US dollar, while the latter underperform in the face of a recession or stagflation.”
CoinShares too says that even though BTC hasn’t rallied despite the Fed raising interest rates four times this year alone, the royal crypt can still reward investors.
“While Bitcoin’s price performance has been weak in the face of an aggressive Fed, this current lull in price performance may be short-lived.”
The latest insight comes two months after CoinShares extensively discussed how a recession would affect Bitcoin’s price outlook.
At the time, the firm also drew attention to oil prices and recent turmoil in the crypto markets as they gauged how interest rate hikes and US dollar strength affected BTC’s valuation.
“Bitcoin now has a well-established inverse correlation to the US dollar.
This makes sense because of its new store of value, but it also makes it incredibly sensitive to interest rates.
Bitcoin’s correlation to gold has declined while it has risen significantly when correlated to stocks, especially interest rate-sensitive stocks such as growth stocks.”
CoinShares also referred to Bitcoin as “both a growth asset and an emerging store of value”, thereby predicting that comparative similarities to stocks would diminish over time.
The analysis concludes,
“Unfortunately, we believe that the US and the rest of the world will likely slide into recession in 2023, although there are many unknowns. Maybe it will be stagflation that then turns into recession? As the liquidity trap really takes hold of central bankers, we think Bitcoin is a good insurance in the face of this monetary policy mess.”
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Featured image: Shutterstock/Philipp Tur/Suri Sharma
