The entire cryptocurrency market is off to a rocky start in 2022. Bitcoin notched a three-month low as global markets continued their New Year sell-off due to different factors. Ethereum fared even worse to start 2022, down nearly 18% following hawkish Federal Reserve meeting minutes.
Macroeconomic factors to rescue
The Buck, #Bitcoin & #Ethereum — Bloomberg’s #Crypto Outlook, February 2022https://t.co/F2JcGQGcGl
— Mike McGlone (@mikemcglone11) February 3, 2022
Mike McGlone, Bloomberg’s senior commodity strategist published a report to highlight bullish scenarios concerning two cryptos despite the big bear. He outlined a few factors that could supplement BTC and ETH to their bullish trajectory.
According to the executive, top cryptocurrencies could have a relative advantage over other investment classes. Here’s why:
“Crypto assets may have a lot going for them as US midterm elections approach, notably versus inflation-related commodities. Typical demand and supply elasticity, and crude prices buoyed by the risk of war in Ukraine, are strong catalysts to refresh oil’s enduring bear market. It’s the opposite for Bitcoin and Ethereum.”
The report noted that the supply elasticity was negative for the top two cryptos and prices dipped within bull markets. Furthermore, Inflation concerns put politicians under pressure to deliver, while plenty of potential U.S. commodity production was limited by regulation. McGlone opined:
“We expect U.S. policymakers will embrace cryptos with proper regulation and ETFs for these reasons: dollar dominance, jobs, votes, lots of revenue (tax) and — most importantly — it’ll run counter to China’s antipathy.”
Compared to the ‘most significant’ commodity
The report cited ‘Crude oil’ as the most significant commodity. However, ‘the rules of supply and demand elasticity and adoption of a revolutionary technology’ could buoy crypto price appreciation versus commodities.
“Bitcoin is gaining traction as a benchmark global digital asset, while oil is being replaced by decarbonization and electrification.”
The graph below highlights the collective narrative.
Source: Bloomberg
The rapidly advancing and more volatile Bloomberg Galaxy Crypto Index (R1) hiked significantly compared to Bloomberg Commodity Index Total Return (L1).
McGlone, previously, had reiterated a similar long-term bullish narrative concerning BTC and ETH. He had noted that both crypto assets were still in their “early adoption” days as they flashed signs of long-term health.
What metrics say
On-Chain metrics too support this bullish run for both, Bitcoin and Ethereum. According to Glassnode, a data analysis platform- Bitcoin’s Liveliness showcased a preference for HODLing, rather than spending.
#Bitcoin Liveliness is a macro metric which tracks coin dormancy vs coin-day destruction.
The current market is seeing a preference for HODLing, rather than spending. This leads to a downtrend in liveliness, typically seen within the context of bear market accumulation phases. pic.twitter.com/a2Y9Uyptmt
— glassnode (@glassnode) February 1, 2022