The ongoing cryptocurrency winter and massive industry crashes don’t mean that digital assets like Bitcoin (BTC) are doomed to failure, according to a major European asset manager.
Although BTC has failed to protect investors against rising inflation in 2021 and 2022, the limited supply of bitcoin could still attract more attention if inflation remains above central banks’ targets, according to investment executives at the Paris-based investment manager Amundi.
Amundi chief investment officer Mortier Vincent and macroeconomist Perrier Tristan on March 2 released a thematic paper analyzing the state and prospects of the crypto market. The CEO argued that bitcoin has failed to serve as an inflation hedge over the past two years due to “dramatic increases in policy and market interest rates” that have put pressure on “all asset classes.”
According to the paper’s authors, nominal interest rates are likely to stop rising or may even fall if inflation is high but not rising. Such a situation would potentially lead to a bull market for Bitcoin, Amundi investment executives said, stating:
“This is a much more favorable environment for an asset that is in limited supply and has an inherently long duration, as its main appeal is its future potential, not its current status.”
Analysts also provided five reasons why recent setbacks in the crypto industry – including the collapse of firms like FTX or Celsius – may not spell the end of cryptocurrencies.
The recent crisis is likely to bring more realistic expectations from the industry and “separate the wheat from the chaff”, Amundi executives said. They compared cryptocurrencies to blue-chip tech stocks, which also suffered wild price crashes before booming. Analysts also noted that the current market decline is still in line with Historical Bitcoin Price Cycles.
Vincent and Tristan mentioned Ethereum’s successful move to proof-of-stake blockchain, highlighting the industry’s opportunities to reduce energy consumption. The CEOs also noted that crypto’s key value propositions such as decentralization and transaction immutability have not been affected by the crisis.
Another reason is that prominent companies in the financial and other industries have not stopped expressing their interest in crypto entirely, with heavyweights such as Blackrock acquires stake in Circle in 2022.
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Finally, regulation is likely to have a more positive impact on the industry, although it will certainly cause temporary price drops, analysts say. They emphasized that many regulators ultimately chose not to ban crypto outright after several attempts, and that advanced economies now see this as an opportunity.
While expressing some level of optimism for the future of crypto, Amundi’s investment executives still noted that the true economic utility of crypto “has yet to be fully confirmed.” This would require widespread use of public blockchains in the real economy and the associated non-speculative demand, experts noted.
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