Analysts at a major bank have called cryptocurrencies a profitable investment in the crisis. Why?
Bitcoin and other cryptocurrencies could outperform bonds and equities in a potential global economic recession. This is the view of Michael Hartnett, chief investment strategist at Bank of America. In a recent publication, he argues that the US Federal Reserve’s new policies could push the country and much of the world into such conditions in the global financial system. We tell you more about what’s going on.
Note that Bank of America’s comments on cryptocurrencies are not limited to Bitcoin alone. In particular, in January 2022 they analyzed altcoins from the coin niche and came to the conclusion that the analogue of “Visa in the world of cryptocurrencies” will be Solana. The reason for this is the low transaction fees and high speed of the latter. Accordingly, blockchain is ready for mass use by ordinary people who have not yet had time to appreciate the benefits of decentralised assets.
A comparison of blockchains from experts at the largest U.S. bank looked like this at the time.
Comparison of the capacity of different blockchains
Solana’s advantages also include a high transaction completion rate – that is, the length of time after which a transaction is considered to be completed and irreversible.
Why cryptocurrencies will grow
After years of trying to combat the effects of the COVID-19 pandemic by expanding its balance sheet, which currently stands at around $9 trillion, the Fed changed its stance in early 2022. This means that after an intensified printing of the money supply from March 2020, the Fed has decided to start reducing it. According to some reports, the pace of this reduction could soon reach the $95 billion per month mark, meaning that its effects and effects will be tangible.
According to the news publication CryptoPotato, “the macroeconomic picture is deteriorating rapidly” and could lead to a recession in the world’s largest economy. Hartnett is also “not shy” of very big words: in his address he mentions “rapid inflation, fluctuating credit rates, recessionary shocks and high volatility”, i.e. asset price changes.
Bitcoin exchange rate over the past few days
Such conditions are clearly not the best environment for the economy. That said, they are where Bank of America is betting on currencies, commodities and, most interestingly, digital assets. Why them specifically? After years of ignoring this asset class, back in March 2021 the bank's analysts said Bitcoin was highly volatile and "impractical as a means of capital accumulation or as a payment system".
However, reports emerged in the summer of 2021 that the bank had set up a cryptocurrency research group. The shift in sentiment intensified a few days later when it was revealed that Bank of America had launched trading in Bitcoin futures. Bank of America then called BTC “important” altogether and stated that the entire industry is “too big to ignore”.
All in all, what emerges from the latter is precisely the attractiveness of crypto for investment in the face of potential economic turmoil. The crypto market has become too big for very high volatility, while providing a clear alternative to the same stocks and bonds. Also, the crypto market has become a very popular investment for the younger generation, so rejecting its huge potential is simply stupid and short-sighted.
Jan van Eck, CEO of investment firm VanEck, also holds a similar view. He believes the crypto industry will continue to grow and that blockchain technology will “completely revolutionise Wall Street”. However, it won’t happen as quickly as we would like – the whole process requires constant coordination with financial regulators. Here’s one quote from the head of VanEck from his recent interview, in which he shares his perspective on what’s happening.
Blockchain technology seems to be completely revolutionising Wall Street. The only reason it is taking so long is because of financial regulators. This whole NFT phenomenon, in general I’m blown away by all the technology. They are incredible.
VanEck CEO Jan van Eck
The CEO expressed hope that the predominantly friendly stance of some European countries towards cryptocurrencies will give the industry another boost. The only exception, he said, is the UK, where the authorities do not support digital assets.
Germany is cryptocurrency-friendly. The same can be said of Switzerland. The continent, surprisingly, has a very good attitude towards digital assets. The UK, on the other hand. It’s, you know, kind of black or white. It’s all very negative here.
Blockchain developers
We think cryptocurrencies could actually be a good investment in the event of a global recession. For example, in that same March 2020, coins collapsed significantly in value, but showed strong and prolonged growth afterwards. It is likely that this feature will cause investors to get involved with coins and in turn drive cryptocurrency rates higher. Be that as it may, only time will answer the question of coins' prospects.
Hopefully, even in the UK, critics will recognise the importance of Bitcoin and altcoin development. You can follow developments in our Millionaire Crypto Chat. There we discuss other important developments for the blockchain industry.
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