Value proposition

Geopolitical tailwinds have ‘strengthened crypto’s long-term value proposition’: CryptoCompare report

In a high-profile report, leading provider of cryptocurrency market data and indices, CryptoCompare, suggested that in the short to medium term, it predicts a recession in global financial markets, although geopolitical winds positives have “strengthened the long-term value proposition” of crypto.

In its Outlook 2022 report, CryptoCompare details that in financial history there have been instances in which a crisis has caused all markets to “go macro”, meaning that in the short term the fundamentals of assets “are no longer relevant, regardless of their relationship to the cause of the crisis.

Suggesting that the looming crisis could see markets “turn macro”, CryptoCompare noted that the global economy and financial markets are “still recovering from the aftermath of the COVID-19 pandemic” which has created “endemic chain issues”. of supply” and leads to “serious monetary problems and fiscal stimulus.

These stimuli “have left us in a dangerous inflationary environment” which is now influenced by a refugee crisis “which could disrupt the European economy” as well as a “worsening commodity crisis which affects both demand and the offer”.

The report details that March 2022 marked the 13and consecutive month that inflation in the United States was above the Federal Reserve’s inflation target of 2%, with an official figure of 8.5% published on April 12. The inflation rate could be higher, the report adds, due to constant changes in the methodology used to measure the consumer price index (CPI).

While the Federal Reserve and the Bank of England raised interest rates by 0.25% last month, CryptoCompare notes that the fight against inflation is now “extremely difficult” due to the aftermath of the war. Accelerating interest rate hikes, the firm noted, “would devalue debt and could trigger a cascade of outflows in fixed-income markets,” threatening the stability of the financial system.

Taking all this into account, CryptoCompare noted that “in the short to medium term, we see no outcome other than an impending recession.” The company pointed to a recent inversion in the Treasury yield curve, where 2-year Treasury bonds are yielding more than 10-year bonds. According to the company, this has “historically been the clearest leading indicator of a recession.”

Source: CryptoCompare

CryptoCompare added that if a “recession does indeed materialize”, it expects crypto markets to “behave the same way they did after the COVID-19 pandemic”, which means that they would undergo a strong correction.

Long-term outlook for crypto markets

Nonetheless, CryptoCompare’s report clarifies that the company believes that “the long-term value proposition of cryptocurrencies has been bolstered by the geopolitical crisis” and that as such a potential correction “can be used as an opportunity to ‘purchase by long-term holders’.




A decentralized monetary system, the report adds, would have been “invaluable for those who have suffered the most from the crisis”, including Ukrainians who have been unable to transfer wealth and Russians who have been pushed out of global markets because of Sanctions.

The report further details that the role of crypto in high inflation environments has been positive over time, with Venezuela, Argentina and Nigeria – three countries with the highest inflation rates – being represented in the top 10 of Chainalysis Global Crypto Adoption Index.

The company added that going forward “there are various macroeconomic events that could further influence the crypto markets,” including a possible Chinese invasion of Taiwan. Sanctions against China, however, would “impact inflation, supply chains and the global economy as a whole.”

CryptoCompare added:

Although digital assets are still subject to significant downsides and headwinds, crypto appears to be a viable hedge against traditional systems, both financial and political, and a way to vote for a competing decentralized and apolitical monetary system.

The company concluded that this “value proposition will likely increase in strength as geopolitical and economic challenges continue to plague the global stage.”

WARNING

The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing in or trading crypto-assets involves the risk of financial loss.

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