Crypto Could Enjoy “Renaissance” as Trust in Banks Fades: Druckenmiller

The worldwide crypto market capitalization is sort of 70% down this yr, largely because of the Federal Reserve’s dedication to climbing rates of interest. Nonetheless, investing legend Stanley Druckenmiller sees a silver lining for the area.

Druckenmiller Requires Bounce 

Regardless of the selloff, crypto has endured because of the ongoing world financial meltdown, Stanley Druckenmiller thinks the nascent asset class might see a revival because the macro scenario worsens. 

Talking at CNBC’s Delivering Alpha conference Wednesday, the legendary U.S. investor mentioned the present macroeconomic panorama and added commentary on how digital property like Bitcoin and Ethereum may very well be affected. 

Druckenmiller stated that he thinks the U.S. economic system might undergo from a “onerous touchdown” within the medium-term future, including that he could be “surprised if we don’t have [a] recession in 2023.” 

Druckenmiller selected to not mince his phrases as he mentioned the grim macro image. He stated that the U.S. was “in serious trouble” and shared an ominous warning that “one thing actually dangerous” might occur because of the worsening state of the economic system. 

Though Druckenmiller’s commentary could also be sufficient to scare buyers worldwide, given his peerless monitor file in taking part in market cycles, he hinted there may very well be a silver lining for crypto fanatics. Druckenmiller posited the thought of a crypto “renaissance” if folks begin to lose belief in central banks. 

Crypto’s Response to Financial Turmoil

The world’s strongest central financial institution, the Federal Reserve, has had a good grip on world markets this yr as inflation has soared, and crypto property like Bitcoin haven’t been spared from the ache. The worth of the cryptocurrency area is about 68% in need of its November 2021 peak, thanks primarily to market exhaustion and the Fed’s dedication to climbing rates of interest. 

The Fed introduced a 3rd consecutive 75 foundation level fee hike on September 21, inflicting Bitcoin, Ethereum, and shares to slip. Fed Chair Jerome Powell has repeatedly indicated that the U.S. central financial institution is focusing on a 2% inflation fee, however inflation hasn’t proven a big slowdown; the final shopper value index print got here in greater than anticipated at 8.3%. That implies additional fee hikes from the Fed may very well be on the horizon. 

Whereas Bitcoin is over 70% down from its $69,000 peak, it’s additionally seen some aid amid the continuing financial uncertainty. When inflation cooled final month, the highest crypto rallied available on the market’s hopes of a potential finish to the so-called “crypto winter.” The crypto market additionally reacted positively to the Fed’s July fee hike as a result of the 75 foundation level improve got here in decrease than some economists had forecast. 

Nonetheless, the Fed’s hawkish stance has vastly impacted crypto this yr, and the market hunch is ongoing. Druckenmiller’s argument is that the asset class might see a bounce not due to the Fed flipping from hawkish to dovish—however as a result of folks could lose belief in central banks just like the Fed altogether. 

Bitcoin has lengthy been touted as an inflationary hedge owing to its shortage (there’ll by no means be greater than 21 million cash), and massive gamers like MicroStrategy and Paul Tudor Jones helped evangelize that thesis within the warmth of the 2021 bull run. Extra lately, although, its skill to function a wager towards inflation has been referred to as into query. If Druckenmiller is confirmed proper, crypto could lastly have its second within the solar. The market might want to assist it commerce independently from the Fed first, although. 

Disclosure: On the time of writing, the creator of this piece owned ETH and a number of other different cryptocurrencies.