Bitcoin (BTC) price has retreated by more than 40% after topping out near $65,000 in mid-April. But that is not enough to derail the flagship cryptocurrency’s long-term bull trend, especially as global markets grapple with declining national currencies and the prospect of a commodity market crash.
So believes Mike McGlone, the senior commodity strategist at Bloomberg Intelligence, who said Wednesday that diversifying into store-of-value assets is a wise strategy against gloomy currency and commodity market outlooks.
“There’s little risk of the dollar dropping in value vs. similarly depreciating currencies, which means that diversification into store-of-value assets like gold and Bitcoin is simply a prudent move, in our view,” he tweeted Wednesday.
Money printer goes brrr
McGlone’s bullish analogy took references from a recent spike in money injected into the U.S. and Eurozone economies. The U.S. Money Supply M2, a measure of the money supply that includes cash and checking deposits (M1) and near money, reached $20.256 trillion on May 3, 2021, from $15.384 trillion on Feb. 10, 2020.
A surplus liquidity injection into the U.S. economy left the dollar weaker against top foreign currencies. As a result, the U.S. dollar index (DXY) fell by almost 11.22% from its mid-March 2020 high of 101.947 to 90.5 as of June 16.
U.S. recessions are shaded; the most recent end date is undecided. Source: Board of Governors of the Federal Reserve System
Meanwhile, the Eurozone Money Supply M2, the money supply in the European Union area, surged from €5.6 trillion in February 2020 to over €14 trillion in March 2021
However, Euro rallied against the U.S. dollar despite its oversupplied status, with Jordan Rochester, a Group-of-10 foreign exchange analyst at Nomura International, noting that the European government’s attuned response to the coronavirus pandemic drifted capital out of the U.S. markets to enter the eurozone economy.
On the other hand, Bitcoin logged supersonic price rallies against the dollar and euro on promises to shield investors from higher inflation. While the BTC/USD exchange rate jumped from $3,858 in March 2020 to a little over $40,000 in June 2021, the BTC/EUR exchange rate spiked from €3,363 to around €32,000 within the same period.
Recent consumer price index reports in the U.S. showed that the inflation rate reached 5% in May 2021, the highest since 1992. In Europe, the headline rate for price growth reached 2%, topping the European Central Bank’s (ECB) target.
Meanwhile, ECB chief Christina Legarde said that they would continue purchasing bonds, fearing tapering of any kind would derail the eurozone recovery.
Related: Looming ‘death cross’ may put Bitcoin bull run in danger ahead of Fed meeting
Federal Reserve officials also expect to sideline inflationary pressure as they conclude their two-day Federal Open Market Committee policy meeting on Wednesday. Earlier, the U.S. central bank said that higher CPI in April and May are “transitory in nature.”
Many are worried the fed’s current policies are setting us up for (and we are already seeing) high inflation. Inflation is bullish asset prices, b/c the dollar is worth less. Even if the asset is worth the same, the dollar it’s being marked against is worth less. BTC number go up
— Jonny Moe (@JonnyMoeTrades) June 16, 2021
Commodity shock ahead?
Investors deeming hedging assets like Bitcoin as risky chose to stay hedged in relatively less volatile areas of markets such as commodities. Copper, the bellwether for macroeconomic health, surged 67% as investors looked for havens against falling currencies. Aluminum, zinc, among other metals also reported massive uptrends.
But China recently has come up with a plan to tame the booming commodity prices. The National Food and Strategic Reserves Administration said Wednesday that it would increase the supply of metals, including copper, aluminum, and zinc, to make them available to manufacturers.
Wow, more big moves from China to tamp down the commodity boom. Big change from earlier this year. https://t.co/7EKPZJU1AJ pic.twitter.com/5Z3RCArxLH
— Joe Weisenthal (@TheStalwart) June 16, 2021
McGlone hinted that a prospect of declining commodity prices would also mean great investment opportunities in the gold and Bitcoin markets.