Key Takeaways
- Global bond markets will have a bad year in 2022, the worst since 1999, according to analysts.
- Inflation and spike in interest rate has already affected long and short-term debts.
- A bad year for bond markets will stand to benefit cryptocurrencies in 2022 as investors will look for alternatives.
YEREVAN (CoinChapter.com) – The cryptocurrency industry is set to benefit next year. The reason, according to analysts, is the declining bond markets. While cryptocurrencies have performed relatively well in 2021, the same cannot say the same for the asset class.
According to a recent report by the Financial Times, the global bond markets will have a bad run next year too. Analysts anticipate it will yield the worst result in 23 years.
1999 was one of the most unfavorable years on record for the bonds market. At the close of the calendar year, some of the biggest bond fund managers in the United States endured massive portfolio losses. The Lehman Brothers Aggregate bond index, which people considered a broad measure of bond performance, returned negative 0.58 percent, according to a CNN report at the end of that year. Inflation worry had caused investors to shift to fixed-income securities.
A similar picture has played out this year as well.
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Inflation to trigger bond-sell offs in favor of Cryptocurrencies
As 2021 began, investors ditched longer-term government bonds for Nasdaq 100 index. As Bloomberg reported, benchmark 10-year Treasury yields broke below 1.3% in July. Thanks to inflation, real rates (interest minus inflation) sank below minus 1%.
As the central banks prepared to hike interest rates to fight inflation, shorter-term debts took a hit. There are fewer takers of debts when inflation is on the horizon. This results in a decrease in bond price and an increase in yield.
As inflation in the US surged to 6.8 percent in November (the highest in four decades), the long-term (10-year) US Treasury yield rose to 1.49 percent from 0.93 percent at the start of 2021. The short-term (2-year) yield is also up to 0.65 percent from 0.12 percent, the report by FT claims.
“We shouldn’t be too surprised that bonds are a bad investment when inflation is running at 6 per cent. The bad news for bond investors is that next year looks tricky too,”
James Athey, a portfolio manager at Aberdeen Standard Investments warned.With the bond market already looking shaky next year as well, cryptocurrencies will cash in. Just like the stock market had provided a go-to alternative to bond investors, cryptocurrencies will stand to benefit from the losses of the asset class.
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Longtime investor choses cryptocurrencies over bonds
Veteran investor and chief executive officer (CEO) of Pantera Capital Dan Morehead sees merit in cryptocurrencies. According to him, the bond market is the biggest Ponzi scheme in history, ridden with insider-trading malice.
“Bond investors are going to get absolutely destroyed when the Fed stops manipulating the bond market,”
Morehead claims in a write-up on Pantera Capital’s website.Safe to say, Morehead knows what he is talking about. His Pantera Capital launched the first cryptocurrency fund in the U.S. when Bitcoin (BTC) was at $65 in 2013. Since then, Pantera Bitcoin Fund is up 80,200% with $6.4 billion assets under management.
“If you’re an institutional investor with any bonds, but especially if you’re more like the classic 60/40 stock/bond portfolio, you might want to hedge the bond bubble with bitcoin/crypto assets,”
Morehead further advises. Whether or not investors will ditch bonds in anticipation of monetary tightening next year remains to be seen. However, should that happen, cryptocurrencies will reap the benefits.
