Crypto could enjoy “renaissance” as Trust in Banks Fades: Druckenmiller
Important takeaways
- Legendary investor Stanley Druckenmiller has hinted at a “renaissance” for the crypto space if confidence in central banks disappears.
- Still, interest rate hikes by the Fed and worsening macroeconomic conditions have proved brutal for the industry.
- Cryptocurrencies such as Bitcoin and Ethereum have not gone unnoticed by the traditional investment class.
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The global crypto market value is down almost 70% this year, thanks mainly to the Federal Reserve’s commitment to raise interest rates. Nevertheless, investment legend Stanley Druckenmiller sees a silver lining for the space.
Druckenmiller calls for bounce
Despite the sell-off, crypto has endured due to the ongoing global economic meltdown, Stanley Druckenmiller believes the nascent asset class could see a revival as the macro situation worsens.
Speaking at CNBC‘s Delivering Alpha conference On Wednesday, the legendary American investor discussed the current macroeconomic landscape and added comments on how digital assets such as Bitcoin and Ethereum could be affected.
Druckenmiller said he believes the US economy could suffer a “hard landing” in the medium term, adding that he would be “surprised if we don’t have [a] recession in 2023.”
Druckenmiller chose not to mince words when discussing the gloomy macro picture. He said the US was “in deep trouble” and shared an ominous warning that “something really bad” could happen due to the deteriorating state of the economy.
While Druckenmiller’s comment may be enough to spook investors around the world, given his unparalleled track record of playing market cycles, he suggested there may be a silver lining for crypto enthusiasts. Druckenmiller floated the idea of a crypto “renaissance” if people start to lose faith in central banks.
Crypto’s reaction to financial turmoil
The world’s most powerful central bank, the Federal Reserve, has had a tight grip on global markets this year as inflation has risen, and crypto assets like Bitcoin have not been spared the pain. The value of the cryptocurrency is about 68% less than its November 2021 peak, largely thanks to market fatigue and the Fed’s commitment to raising interest rates.
The Fed announced a third consecutive rate hike of 75 basis points on September 21, sending Bitcoin, Ethereum and stocks tumbling. Fed Chairman Jerome Powell has repeatedly indicated that the US central bank is targeting an inflation rate of 2%, but inflation has not shown a significant decline; the latest consumer price index print came in higher than expected at 8.3%. That suggests further rate hikes by the Fed may be on the horizon.
While Bitcoin is down over 70% from its peak of $69,000, some relief has also been seen amid the ongoing economic uncertainty. As inflation cooled last month, the top crypto boosted market hopes for a possible end to the so-called “crypto winter.” The crypto market also reacted positively to the Fed’s interest rate hike in July because the 75 basis point increase came lower than some economists had predicted.
Still, the Fed’s hawkish stance has heavily impacted crypto this year, and the market decline is ongoing. Druckenmiller’s argument is that the asset class could see a bounce not because of the Fed switching from hawkish to dovish—but because people may lose confidence in central banks like the Fed altogether.
Bitcoin has long been touted as an inflation hedge due to its scarcity (there will never be more than 21 million coins), and major players such as MicroStrategy and Paul Tudor Jones helped evangelize this thesis in the heat of the 2021 bull run. however, its ability to serve as a hedge against inflation has been questioned. If Druckenmiller is right, crypto may finally have its moment in the sun. However, the market must help it act independently of the Fed first.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
