Bitcoin and other cryptocurrencies could outperform bonds and stocks amid a potential recession, noted Michael Hartnett, BofA’s chief investment strategist. In a recent note, he argued that the US Federal Reserve’s new policy could push the country and most of the world into such an economic state.
Crypto to Blossom Amid Upcoming Recession?
After years of trying to fight the consequences of the COVID-19 pandemic through enhanced expansion of its balance sheet, which is now around $9 trillion, the US central bank changed its tune at the start of 2022. Meaning that after more than doubling its balance sheet since March 2020, the Fed decided to start reducing it, with some reports suggesting that it could soon shed up to $95 billion worth of assets per month.
Citing a note from the Bank of America’s strategists, Reuters reported that the “macro-economic picture is deteriorating fast” and could lead to a recession for the world’s largest economy.
By using strong words like “inflation shock worsening, rates shock just beginning, recession shock coming,” Hartnett warned bank clients that most assets will meet massive volatility. Yet, some, such as bonds and stocks, will underperform others.
In fact, the bank-backed several horses to come on top amid the potential recession – cash, commodities, and, interestingly, cryptocurrencies.
How Come Crypto?
For those following the crypto industry and the general approach from Wall Street toward it, seeing BofA choosing digital assets as potential top-performers could be quite surprising. In fact, it wasn’t all that long ago when BofA, along with countless other banking organizations, took frequent jabs against bitcoin and the entire field.
We won’t mention the change of heart moments from names like JPMorgan, Goldman Sachs, and Citigroup. Let’s focus on the Bank of America.
After years of ignoring the asset class, BofA asserted in March 2021 that bitcoin is highly volatile, making it “impractical as a store of wealth or payments mechanism.”
But then came the summer of 2021, and reports emerged that the bank had set up a cryptocurrency research team. The change-of-tune sentiments intensified days later when it became known that BofA had launched a Bitcoin futures trading service.
The bank’s u-turn was solidified in October of that same year (half a year after bashing bitcoin). In another paper at the time focused on digital assets, BofA researchers called BTC “important” and referred to the whole industry as “too large to ignore.”